GoodOaks Homecare wins two awards at the Home Care Awards 2024
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Franchising can be a fuss-free, fast and reliable way of starting a business in a particular industry. You are buying in to a franchisor’s knowledge, systems, processes, brand and support, and this can speed up your growth and increase the chances of your business succeeding.
All that support is paid for by franchise fees. Franchise fees can be split into two main groups:
- Initial franchise fees or Joining Fees
- Monthly franchise fees, often as a percentage of your revenue.
The initial franchise fee generally will cover the costs to the franchisor of helping you get up and running. In home care, this will include a start-up pack of stationery, marketing materials, website development, signage, training, recruitment support, and more.
If you are buying a restaurant franchise for example, you may need to be careful about capital expenses included in these fees. HMRC has guidance on their website about this. But because in home care you don’t need big expensive items such as ovens, freezers, fitting out shops etc, this isn’t a problem in our sector.
Are monthly franchise fees tax deductible?
Yes, you can deduct monthly franchise fees from your corporation tax bill. Because monthly franchise fees are a legitimate business expense, they will be recorded as an overhead when it comes to your end-of-year accounts.
This means that you can claim these costs against your profits, reducing your corporation tax bill. For example, if you had a turnover of £200,000, and a 5% franchise fee, you would pay £10k on franchise fees, covering your use of the brand, the website, systems, processes and support. This £10k cost would reduce your corporation tax bill by £1.9k if the corporation tax rate stays at 19%.
Can I claim back VAT from Franchise Fees?
For most businesses, any VAT you pay on your franchise fees you’d be able to reclaim from the VAT you charge your customers or clients. A home care franchise is a little different, because it is VAT exempt. This means that although the franchisor has to charge VAT, home care companies aren’t allowed to reclaim VAT from clients. There is a campaign at the moment to change the rule to make home care zero rated rather than exempt, so watch this space!
If you would like more advice on how to start a non-medical home health care business then simply click on the highlighted wording to reach our blog on the subject.
