I'm doing a self-assessment tax return for a client - sole trader, doing stock takes for the licensed trade.
He purchased a franchise a number of years ago and as far as I can see his previous accountant has depreciated the cost of this over a number of years. Each year this depreciation has been added back in for tax calculation purposes and no capital allowances have been claimed for the franchise. The franchise owner has charged my client additional monthly advertising and admin fees which have been correctly treated as revenue expenditure i.e. offset against tax. As far as I am aware, this is all correct so far.
In the tax year which I'm currently working on, he purchased the master franchise (sole franchisee for a large geographical area) for £18,000. He wants this writing off against tax in this tax year - I don't think this is correct.
If the master franchise agreement shows elements of the total cost which can be apportioned to revenue expenditure then these can be claimed but any capital element cannot - can anyone confirm this?
And as for Capital Allowances - where the initial fee is accepted as capital, it may be possible to seek capital allowances for "industrial know how"; but the statutory definition defines know how to include any industrial information and techniques likely to assist in the manufacture or processing of goods or materials and this indicates that the definition excludes commercial know how. Industrial know how doesn't seem relevant in this case.
So if any part of the £18,000 fee has not obtained relief as a revenue expense or by way of capital allowances for know how then as I see it this master franchise license (to operate a business in a certain manner) cannot be used as tax relief against income for sole traders or partnerships.
I'd really welcome any input from anyone who as experience of such matters.
