Anyone able to help - I need guidance with "buying" a franchise?

Bean_Counter

apples1 wrote: »

Thank you. Have I been mislead then? There is no less tax (other than lower NI) to pay on taking dividends of an say £40k compared to having a salary of £40k I thought i was toid that the tax bands are lower so you pay less tax. Any help on this appreciated as out net income level will partly determine whether we go ahead or not.

Don't know wanything about corporation tax either yet. Do you pay that on the dividends too. Not sure what is meant by retained profit.

Thanks for your help.

On the tax on the dividends, you might not have been misled. Many people use 'tax' as a generic term to cover all types of taxes. Your are saving 'tax', it is just that it is national insurance you are saving rather than income tax. I don't think that the bit about the tax bands being lower is correct.

As you said, you have to look at the whole picture to see how much you will make.

To cover corporation tax very simply, the net profits that the company make are subject to corporation tax. So effectively if you make profit and leave the money in the company you pay corporation tax. When you take the money out of the company by either salary or dividend, then rather than the company being taxed, you as an individual become taxed as national insurance and income tax.

As I said, that is a very, very simplified overview and there is lot more to it than that.

Just out of interest, and of course you don't need to answer, it is Specsavers?

apples1

Thanks for your help. still not totally got my head around the tax thing but as we are moving forward with our research we will prob have an initial meeting with an accountant soon so hopefully that will help.

Not being rude but don't want to get into which franchise it is that we are considering. Hope no offence taken.

Bean_Counter

apples1 wrote: »

Not being rude but don't want to get into which franchise it is that we are considering. Hope no offence taken.

No offence taken.

Are you buying a pre-existing business or starting a new franchise from scratch?

If its the latter, the main reason for asking my last question was whether you could work out where the other franchises are. If you could identify the establishment, and since you said that all franchises had to be a limited company, then try to find out what the company name is. The law states that you have to put your company details such as registered office, company number on all official documents such as headed paper. If you could work that out, then I would go to the Companies House website and download a copy of their latest set of accounts (only costs £1 a pop) to see how their income and expenditure stacks up.

If its the former then they will of course provide copies of accounts without the hassle!

apples1

Its a pre existing business but currently group owned i.e not a franchise if that makes sense?!

Bean_Counter

Ah that does make sense - I must have misread your opening post and assumed you were starting from scratch.

OK then, there is no real need to worry about corporation tax as the previous accounts that the company will show roughly how much that it.

I still think that the Business Link website is a good place to look at as it will cover other areas of running a business such as employment law, health & safety etc. Link is:

http://www.businesslink.gov.uk/bdotg/action/home?domain=www.businesslink.gov.uk&target=http://www.businesslink.gov.uk/

So your main question must remain what is a reasonable price for the franchise fee. If you can not find out how much other franchises are paying, then I would look to see what you are getting for franchise i.e. if it includes advertising, how much do they spend on advertising (or national advertising costs per store.) If it covers rent of the premises, how much are premises costs in their accounts (or similar high street premises.)

Do you want me to run through the PAYE / dividends thing using some examples rather than just a technical explanation?

Bean_Counter

I came across this, and thought of you! Might of some use:

http://www.hsbc.co.uk/1/2/business/needs/setting-up-a-franchise/finance-your-franchise;jsessionid=0000N228Kg35j3DignirKInPTwW:11j77ghle