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Franchising Life Cycle

Franchising Life Cycle

ESTABLISHING BUSINESS

Entrepreneurs are people with an idea that works. They might be establishing a franchise business for the first time in the UK or looking to expand their franchise to the UK. Either way, there are a lot of matters to consider when franchisors or larger franchisees are setting up in the UK for the first time.

Entrepreneurs looking to set up in the UK should develop detailed business plans. As part of their business plan, they should consider how they will reduce risk and maximise profits as their business develops or grows into the UK market.

Setting up and people

When considering establishing themselves in the UK market from overseas, an overseas franchisor may wish to consider whether to initially set up a branch or a company in the UK to operate through. Establishing whether the idea works in the UK market might involve setting up franchisor-owned operations initially to prove the concept works in the UK market.

People

Once a UK setup has been established, a franchisor will want to establish the extent to which they will be either sourcing new staff in the UK or using part of their existing team from overseas.

VAT and duties

Whilst registering a company or branch can be done quickly, VAT registration can take a few weeks to be agreed with the UK authorities. For non-established UK entities, it is vital to be VAT registered if you will likely exceed the thresholds from the outset. However, when registering, non-established UK entities need to demonstrate an intention to trade.

If any goods might be required to be shipped to the UK for the operations to be successful and mirror the success overseas, then duties and customs also need to be considered. This is particularly crucial given the new rules coming into place throughout the current Brexit transition period.

Property and insurance

Location is important for many franchises although the focus for many new franchises has been online in recent months due to restrictions. Where a physical presence is required, we can provide guidance on potentially suitable areas, for example high footfall locations for retailers and hospitality and leisure franchises.

In setting up a franchise you will want to ensure you take out appropriate insurance. Even if you do not have property or other assets, there is an obligation to have insurance in place if you have employees.

Bank account

Any new franchise business will want to open a business bank account. For a franchise establishing from overseas it might seem easier to run transactions through an overseas parent initially however, if a franchisor is wanting to establish a proven concept in the UK it is recommended (although not essential) to set up a bank account designated to the UK business.

Tax

If you are setting up a profitable business in the UK, then there will be tax to pay. If you are expanding your franchising by establishing in the UK from overseas, cross-border and transfer pricing requirements will need to be considered.

From a franchise set up as a UK company or branch, as well as VAT and payroll taxes, the business will need to prepare tax computations and submit a CT600 return. This is prepared in conjunction with the statutory accounts.

Corporation taxes are typically payable 9 months after the year end, although for larger groups there may be requirements to pay corporation tax in instalments.

Other considerations

Further areas a franchisor would need to consider include employment law, company secretarial services and property considerations.

If you require support for any elements of the above, please contact Andrew Wooding, Senior Manager at accounting and advisory firm Menzies LLP.

Andrew Wooding

+44 2074 651 959

awooding@menzies.co.uk

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