I have a client who paid around £16,000 to run a locksmith business. He was already a carpenter and capable of doing the work. As far as I can see the fee was mainly for the brand name, goodwill and and a business referral system.
Sounds like he was stung good and proper but that's besides the point.
Business would be provided to the franchisee for which an addituional royalty would be charged!
The client is a sole trader and we have amortised the franchise fee over 10 years.
The franchise company has now been wound up during 06/07. There is no business generated by them and my client no longer uses the brand name. Can we write off the balance of the intangible asset in the current year? Cannot see why not but would appreciate any comments.
Have done search on franchise, whilst some good info nothing on writing off whole amount due to insolvency of franchisor.
Thanks
Roger
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Replies (2)
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Write it off - simple
Yes I think you should write off the franchise fee.
Assets should be stated at the lower of cost and net realisable value (if current) or cost less depreciation over the useful life of the asset (if fixed).
Your "asset" seems to have a nil realisable value, and no more useful life, so, either way, it should be written off.
As for the tax treatment.... see a tax specialist.
Capital expenditure
Hi Roger
From an accounting point of view, yes it should all now be written off however your question may relate to tax relief?
Although this may depend on the terms of the Franchise agreement, from what you say, the £16K would appear to be capital in nature and so it is unlikely your client would be entitled to any tax relief on either the amortisation charged so far or the balance now to be written off.
hope that helps