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Franchise Fee and lending money to LTD company

Best way to pay for franchise

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Hi.  Thank you for looking.

I am in the process of starting a franchise.  I have set up a LTD company as I am also working employed for the time being and wish to keep my affairs completely separate.  Also the (estimated income) from the new franchise will take me way into higher rate tax so I believe LTD company is the best way to do this.

Anyway, my questions are this.  The Franchise fee is £10,000.  I have paid the initial £2,000 from a bank account I set up for the LTD company in the name of the company.  I transferred £2,000 from my own personal bank account to the LTD company to make the payment.  The remaining £8,000 will also be done this way.  On top of this I will need to transfer around an extra £3,000 from my personal account to the LTD company account in order to buy the initial stock I need and to cover 2-3 months marketing.  

My questions are these :

Can I offset the £10,000 franchise fee against corporation tax.  If so, would this all be offset against first years trading accounts, or would it be spread over a certain number of years ?

Secondly, the additional initial money I need to put in to buy stock and marketing, can I class this as a loan that I make to the LTD company, and then, when sufficient money built up in the future, just transfer the money back to myself and write the loan off ?  There would be no interest payable.  I am guessing that as it is a loan, I would not need to pay any personal tax when I get the money back ?

Any advise would be greatly appreciated, or any tips/advice on any better ways to do this.

Thanks

Noel

Replies (10)

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By CJaneH
02nd Jan 2020 17:02

Get an accountant you do not understand accounts or tax.

Possible areas you are currently going to trip up on are.

Bookeeping
Statutory Accounts to Co House
XBRL accounts to HMRC
Payroll
VAT
Personal Tax Returns

All but the first come with penalties when filed late

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By ireallyshouldknowthisbut
02nd Jan 2020 17:44

If you can afford to blow £10k on a franchise you can afford £1k for an accountant to look after you, not least you probably ought to have taken the advice BEFORE forming the company. One 30 minute free advice session can often save you a bomb in fees.

Generally my "go to" advice on Franchise is do them in your own name, so you can at least get tax relief against the day job if you find out you have been sold nothing more than a "business idea" and a training session for real hard cash and the 'opportunity' for the franchisee to scrape your turnover.

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By Accountant A
02nd Jan 2020 18:23

noel2020 wrote:

I am guessing ....

If that is your approach to the various legal obligations involved in running a business, I suggest that you give up now. If you don't know, pay for advice It really is that simple.

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By noel2020
02nd Jan 2020 21:00

Thanks for the extremely helpful replies thus far.
Just 2 generic questions that was thinking someone may be able to answer. I now understand why “some” accountants have an unenviable reputation and unfortunately it appears that the “some” have replied to my questions.
I am pre-start up, not planning on trading for 4 months. I will be getting an accountant on board, however was just trying to pre-arm myself.
I am a successful property landlord and mortgage advisor, and should anyone ask me a “basic” mortgage or property related question, I would not make them feel stupid for posting the question.
Anyway, happy new year and I hope you enjoy putting other people down who are stupid enough to post on here.

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Replying to noel2020:
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By Accountant A
03rd Jan 2020 12:25

noel2020 wrote:

I am pre-start up, not planning on trading for 4 months.

If you are "pre start up" how have you set up a company and entered into a franchise agreement?

Why did you only issue one class of shares and what was the thinking behind the 88/12 split between you and your wife?

noel2020 wrote:

I now understand why “some” accountants have an unenviable reputation and unfortunately it appears that the “some” have replied to my questions.

Ah, I see you have moved from the "asking for free advice from accountants" to the "slagging off accountants because they won't/cannot sensibly give you free advice" phase.

noel2020 wrote:

I will be getting an accountant on board, however was just trying to pre-arm myself.

Freeloaders used to pretend to be accountants to get free advice (the old "I have a client who ..." routine). They now go for the more sophisticated (but equally transparent) "I have appointed/am proposing to appoint an accountant but ...".

Ironically, you might have got some useful thoughts on franchising if you had posted where you should have, on this site owner's other site.

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By noel2020
02nd Jan 2020 21:01

Thanks for the extremely helpful replies thus far.
Just 2 generic questions that was thinking someone may be able to answer. I now understand why “some” accountants have an unenviable reputation and unfortunately it appears that the “some” have replied to my questions.
I am pre-start up, not planning on trading for 4 months. I will be getting an accountant on board, however was just trying to pre-arm myself.
I am a successful property landlord and mortgage advisor, and should anyone ask me a “basic” mortgage or property related question, I would not make them feel stupid for posting the question.
Anyway, happy new year and I hope you enjoy putting other people down who are stupid enough to post on here.

Thanks (0)
Replying to noel2020:
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By whitevanman
02nd Jan 2020 23:42

Your response is not unique but is nonetheless disappointing. You may not appreciate it but you have had some very sound advice that you dismiss as putting you down.
Aweb is a site for accounting and tax professionals. It is not a forum for Joe public to get free advice (which may cost a lot more than you might conceivably "save").
You refer to "basic" questions which is suggestive of a failure to understand; there are no basic questions really.
The treatment of the initial franchise fee is different depending on whether it is in relation to a company or a sole trader. You have already set up a company and entered into a franchise agreement (or so it seems) in the name of the company. Do you at least recognize that you may already have created problems or indeed cost yourself money, that might have been avoided if you had sought professional advice at the outset?
Do you also recognize that the professionals on this site are not prepared to compound your error by giving advice without proper consideration of the many relevant factors?
Accept the replies for what they are rather than reading some insult into them. Get an accountant ASAP. Do not wait till your 4 months is up as you may simply have caused more problems by then.
Good luck.

Thanks (2)
Replying to noel2020:
By ireallyshouldknowthisbut
03rd Jan 2020 11:20

Whilst we are on the unhelpfulness of the forum and how terribly accountants are, most franchises are absolute pups.

From the sound of it, renting out roofboxes sounds right up there with the oven cleaning ones.

Who is your target market exactly? To not just buy one (they are what, £150 or something? ) means you have a car, a young family of probably 2 or more and no storage space at home. So people with 2 or more kids under 10 who live in flats?Thats a pretty small market place right there, not least as the only time you see roof boxes is going to be the school holidays, mainly summer, might be a few over Easter/Xmas, but very few. So you have going to have a highly seasonal business on a very niche business, lots of storage costs in the winter, plus you are going to have to presumably drive out and fit these things, and drive back to collect them, plus pay all the franchise costs. Sounds, er, wonderful!

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By adf2410
02nd Jan 2020 23:25

Hi Noel,
Happy New Year!

The reason you have been given short shrift is because this website is for professional accountants to discuss accountancy and tax matters between themselves, rather than to give free advice to non-accountants.

Regardless of that, we get a lot of people turning up here asking what they think is a simple question which actually isn't so simple at all, and which they should be asking their own professional adviser who knows their circumstances. For example, if I asked you the simple question 'I earn £120k pa, can I get a £500k mortgage on a £1m house?' you would know perfectly well that there are a lot of questions you need to ask before you can answer that 'simple' question - and way more than you would be prepared to ask/answer on a public forum, for free, without any engagement letter / professional indemnity insurance in place.

With regards to your questions, essentially you're thinking about all the right things, in sort of the right way, but really you need to get professional advice from someone who knows everything about your financial and domestic circumstances.

Best of luck with the new business!

adf2410

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By Tim Vane
03rd Jan 2020 02:24

You asked for advice. You said it would be appreciated. You were given advice. It’s really good advice. You don’t appreciate it because it’s not the advice you wanted to hear.

Please amend your question to read:

“Any advice would be appreciated, unless it’s advice that I don’t want to listen to, in which case I reserve the right to be unappreciative and boorish!”

That way we all know where we stand. Thanks!

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