Franchise News: Effects of Budget Changes for Franchises
Carl Reader, Dennis & Turnbull Ltd
The emergency budget was a concern of many business owners as well as franchises. The announcements by George Osborne on 21 June were reasonably kind to business, ensuring that entrepreneurs were not unduly penalised for their efforts and risk.
The following bullet points summarise the key changes in the budget that will affect franchises. Further details will be released by the various news agencies once they have had a chance to digest the full text of the Finance Act, and more details are available on our main Dennis & Turnbull website.
- A change to CGT with 18% and 28% rates payable by individuals, depending on the amount of their total taxable income and the annual exempt amount remaining at £10,100. Gains qualifying for entrepreneurs’ relief will be taxed at 10% and the lifetime limit raised to £5 million.
- The main rate of corporation tax will be cut to 27% from April 2011 and the small profits rate will be 20%.
- A new regional employers’ NICs holiday for new businesses in targeted areas of the UK.
- Pensions: Annuity purchase can be delayed to age 77, from the current 75. The maximum annual tax relief on pensions is to be reduced, but state pensions will be indexed from April 2011.
- Individual Savings Account (ISA) limits will increase annually with RPI from April 2011.
- The standard rate of VAT is to increase to 20% from 4 January 2011.
Carl Reader is the head of franchising at franchise accountants Dennis & Turnbull, a leading firm of accountants in the franchise industry.
The above information is provided as general advice and no liability is accepted by the author, Dennis & Turnbull or Select Your Franchise in respect of individuals or businesses acting on the above. Independent advice should be sought in all circumstances.
Tags: budget 2010, carl reader, Franchise Finance, taxation
Valuing a Franchise Resale
Carl Reader, Dennis & Turnbull Ltd
For most franchisees the purpose of running a business is not only to earn a reasonable living, but also to build an asset that can be resold at some point in the future.
There are two main ways that franchise accountants would value a franchise:
Asset based valuation
This method would typically be used for a loss making business, or an investment business. To perform an asset based valuation, the total assets (such as premises, equipment, furniture etc) must be totalled. We then deduct any business liabilities (such as outstanding mortgages / financing) to deduce the “break up” value of the business.
Earnings based valuation
This method is used for businesses with sustainable profits. To value a business using an earnings based valuation method, we must follow the following broad process:
- Identify sustainable profits;
- Remove any surplus assets (to be valued using method 1 above); and
- Capitalise the value of the sustainable profits
The sustainable profits can be derived from either historic profits, or from future projected profits, depending on the current position of the business. These would often be reconstituted to strip out any exceptional items, and to restate the profits as if the franchise business was running at arms length from the owner.
The capitalised profits are then calculated by multiplying the sustainable profits by a relevant “P/E ratio” (Price / Earnings ratio).
Potential Changes in the Budget affect Franchise Businesses: Part 2
Carl Reader, Dennis & Turnbull Ltd
In this second part on the likely affects of the emergency 2010 budget on franchise business, we will look at Business, Employment and some other changes.
To find out more about changes in taxation, please see the previous posting.
Business
The government is to focus on improving the flow of credit to smaller firms. This will include the possibility of establishing a loan guarantee scheme to replace the Enterprise Finance Guarantee programme and the use of net lending targets for nationalised banks.
Some backdated demands for business rates will be cancelled.
Pensions
The default retirement age is to be phased out, and a review will be held to establish the dates at which the state pension retirement age begins to rise to 66. There is a commitment that, in the case of men, this will not be before 2016 and, in the case of women, not before 2020.
Rules requiring mandatory annuitisation at 75 are to be dropped. At the moment, people who establish a pension savings fund must use the money to purchase an annuity, or an annual income for life, when they reach the age of 75, preventing them from passing on the capital to their heirs.
The link between the basic state pension and earnings will be restored from April 2011 with a guarantee that pensions are raised by the higher of earnings, prices or 2.5 per cent, as proposed by the Liberal Democrats.
Thus far, the government has not offered a policy on pensions tax relief. The Liberal Democrats had been in support of abolishing all higher tax rate relief, capping relief at the basic rate of income tax.
Employment
All existing welfare-to-work programmes are to end and are to be replaced by a single welfare-to-work programme.
Those Jobseekers’ Allowance claimants who must deal with the most significant barriers to work will be referred to new welfare-to-work scheme at once rather than after 12 months. In the case of those Jobseekers’ Allowance claimants aged under 25, they will be referred to the programme after six months.
The EU
There will be no further transfer of sovereignty or powers to the EU over the course of the next Parliament.
The government will work to make sure that the application of the Working Time Directive in the UK is limited.
Any future European treaty that involves the transfer of power will be subject to a referendum.
The environment
A green investment bank will be set up.
The government is to press ahead with a high-speed rail network but will reject plans for additional runways at Gatwick and Stansted.
A national planning statement will be drawn up to allow a process for replacing existing nuclear power stations with new ones, although Liberal Democrat MPs will be allowed to abstain on any vote on the plans.
Carl Reader is the head of franchising at franchise accountants Dennis & Turnbull, a leading firm of accountants in the franchise industry.
The above information is provided as general advice and no liability is accepted by the author, Dennis & Turnbull or Select Your Franchise in respect of individuals or businesses acting on the above. Independent advice should be sought in all circumstances.
