Write off of initial franchise fee before period ends as no ongoing value, can losses created be used against future trading?

My client bought a 5 yr training franchise, with upfront payment, which we were writing off over the 5 yr period of the franchise.  My client operates as a limited company 'x' ltd trading as 'y' franchise.

After 18 months he was getting no income or business via the 'y' franchise and has written to the franchisor saying that he wishes no longer to use the franchise name.  The client is trying to get similar work though his own name and contacts but no longer wants to be tied into paying the franchisor the monthly %age of all income when it is not derived through the franchise. 

A verbal agreement has been made with the franchisor that my client can cease to operate under the name, but there is no real prospect of my client getting any of his initial investment back.

I therefore wish to write off the remaining franchise value at the end of the 2nd yr as its UEL is now over.  This will create a fairly large loss. (There are already losses brought forward but there are no creditors except for a directors loan so I am not too worried about the trading insolvently aspect.)

Can the loss created be carried forward against future training profits even though they will have nothing to do with the original cost that we are writing off?   I would assume it can as it is part of the same trade but would be grateful for confirmation.

Thank you

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Correct treatment

RebeccaBenneyworth |
RebeccaBenneyworth's picture

Thank you, future trading and timescale of loss relief

Anonymous |