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Where Taxpayers and Advisers Meet

Franchise fee bad debt

BD73
Posts:4
Joined:Wed Aug 06, 2008 4:09 pm
Franchise fee bad debt

Postby BD73 » Fri Jan 30, 2009 9:45 pm

Please could somebody help with this problem.
My client, a limited comany bought a franchise for £7k, hoping to get a new line of income for the company.
Unfortunatley soon after, due to the housing market crash, the franchise company went bump.
The question is can the Company get tax relief on the lost fee. Would it be dealt with as a write off of goodwill, and would 100% be avle to be claimed in the year it was purchases.
Thanks for any comments.

Lambs
Posts:1539
Joined:Wed Aug 06, 2008 3:15 pm

Re: Franchise fee bad debt

Postby Lambs » Mon Feb 02, 2009 1:03 am

B,

At first blush it appears to me that this is not a bad debt as such - which would be dealt with under the Loan Relationships regime - but (and you clearly recognise this) a corporate intangible. You will no doubt be aware of the welcome revision to the old rules introduced by FA 2002 Sch 29 so my first reply would be,

How would an accountant treat the expenditure, in accordance with UK GAAP?

If it should be w/off to the P & L a/c as a CI, then I should not be keen to disturb this treatment from a tax perspective.

Regards,

Lambs

maths
Posts:8230
Joined:Wed Aug 06, 2008 3:25 pm

Re: Franchise fee bad debt

Postby maths » Mon Feb 02, 2009 7:48 pm

Not really my scene, but is it not the case that under the typical franchise agreement the up-front fee is usually payable in return for a "bundle" of items including training, stock, know-how, equipment etc.

Assuming this to be so, then is it not the case that a commercially acceptable apportionment would need to be made amongst the various items?

Other things being equal, a greater apportionment in favour of stock would appear preferable; and as little as possible to "capital" items in respect of which no CAs are available.

taxattack
Posts:309
Joined:Wed Aug 06, 2008 3:44 pm

Re: Franchise fee bad debt

Postby taxattack » Thu Feb 19, 2009 1:35 pm

Please could somebody help with this problem.
My client, a limited comany bought a franchise for £7k, hoping to get a new line of income for the company.
Unfortunatley soon after, due to the housing market crash, the franchise company went bump.
The question is can the Company get tax relief on the lost fee. Would it be dealt with as a write off of goodwill, and would 100% be avle to be claimed in the year it was purchases.
Thanks for any comments.
Is this a franchise (with training, stock, equipment etc), or simply an exclusive licence to take instructions in a certain territory?

Chris

BD73
Posts:4
Joined:Wed Aug 06, 2008 4:09 pm

Re: Franchise fee bad debt

Postby BD73 » Thu Feb 19, 2009 2:04 pm

It is training, exclusive territory and leads generated from the franchisor. There is no stock or selling as it was a franchise to provide HPI packs for houses. Therefore just a service.


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