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Company franchise purchase - contributions & tax?

A company looking to acquire a franchise making a capital contribution

I've got two scenarios where a company wants to acquire a franchise business and as part of the incentive wants to make contributions.

(1) First scenario is paying a capital contribution for the franchise to undergo a fit-out - now I'm cool with that treatment I think. Providing they meet the usual conditions, the payment itself wouldn't attract VAT (outside scope) and the company could claim capital allowances on the payment (long as franchise is UK, buys eligible assets, etc).

(2) This one confuses me more. One scenario is to pay a contribution for the franchise to exit the contract agreement they have with their current parent. Originally they said they "may" instead use it for capital fit-out, but I said if you're too general, you will incur issues, be specific. How does this one work? It's not a capital contribution per say, it's an inducement to come with the company by terminating a contract agreement early. How does this apply for VAT/allowances etc?

 

Cheers

 

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12th Jul 2018 12:11

Please can you be a bit clearer about who is planning to pay what to whom (franchisor, existing franchisee, your client)?

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12th Jul 2018 14:09

Company (franchisor) is paying a contribution to franchisee of a 3rd party franchisor so that they can exit early out of their current franchise agreement.

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