9 minutes of reading
Accounting and tax accounting for a franchise business
Franchising makes it easier to run a business, but it has its own financial characteristics. We analyze two types of financial accounting: how they differ, how they are compiled and where they are maintained.
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29.07.2024
Accounting and tax accounting for a franchise business
The franchise business is a proven business model and support from the franchisor. However, in order to successfully manage such a business, it is necessary to properly organize financial management. In this article, we will analyze what accounting and tax accounting are and how to keep them.
What is the difference between accounting and tax accounting?
Accounting provides information about the financial position and performance of an organization. It is maintained according to national accounting standards (for example, IFRS and RAS in Russia) and includes a statement of financial results, cash flows and others.
The main purpose of tax accounting is the calculation and payment of taxes in accordance with tax legislation. In Russia, it is regulated by the Tax Code, and is maintained by companies for the tax service.
Both accounts are assessed in accordance with accounting or tax rules, which may differ. For example, they have different depreciation methods, recognition of income and expenses, special accounting rules for certain types of assets, liabilities, and so on.
For effective business management, you need to know the differences between these accounts and keep them correctly.
Features of accounting and tax accounting
Entrance fee
The franchisee pays an entry fee (lump sum), which grants the right to use the franchisor's brand and business model. In both accounting and tax accounting, it is accounted for as an intangible asset and amortised during the term of the franchise agreement (Accounting Regulation 14/2007 and p. 3 of art. 257 of the Tax Code of the Russian Federation).
Intangible assets, such as the rights to use the franchise, are subject to depreciation.
In accounting, a lump sum payment is reflected on an off-balance sheet account, for example, "IA received for use". It is marked as deferred expenses and written off in equal installments over the entire term of the franchise agreement.
When calculating income tax, the entry fee is divided in equal shares for the entire term of the contract, if any, and shares are recognized on the last day of the quarter or month. If there is no deadline, the accountant independently allocates costs according to the principle of uniformity of recognition of income and expenses.
Costs are usually distributed over 5 years (p. 4 of art. 1027 of the CC of the Russian Federation) and are necessarily prescribed in the settlement policy.
Royalties
These are regular payments that the franchisee pays to the franchisor for the use of the brand and other assets. They are included in the expenses of the current period (AR 10/99).
Paragraph 7 of Article 264 of the Tax Code of the Russian Federation takes into account royalties as other expenses related to production and sale. It is recognized either on the date specified in the contract or on the last day of the reporting period (1 calendar year), which begins on the date of registration of the company and ends on December 31.
When calculating value added tax, the purchase of a franchise (transfer of rights from the franchisor) is considered as the provision of services (p. 5 of Article 38 of the TC of the Russian Federation). That is, the franchisor must charge VAT on the amount of remuneration and issue an invoice to the franchisee:
- on the date of entry into force of the commercial concession agreement upon receipt of the lump sum payment;
- on the day of settlement under the terms of the agreement upon receipt of royalties.
Small enterprises operating under a franchise can use the simplified taxation system (USN) – its accounting is regulated by Chapter 26.2 of the Tax Code of the Russian Federation.
Additional services
The franchisor can provide training, marketing, consulting and so on to the franchisee, and they must also be accounted for as expenses of the current period (AR 10/99). In tax accounting, this is regulated by art. 264 of the Tax Code of the Russian Federation.
Stocks and equipment
Equipment purchased under a franchise agreement is accounted for as tangible assets. It is subject to accounting depending on the purpose and use in the course of activity.
Losses
The franchisee may take into account losses incurred in the course of its activities when calculating income tax in accordance with p. 1 of art. 283 of the Tax Code of the Russian Federation. This will reduce the tax base in the future.
An example of accounting and tax accounting for franchise payments
The entrepreneur bought the franchise of the programming school and signed a contract with the franchisor for 5 years. The lump sum was 150,000 rubles, including VAT of 25,000 rubles; royalties – 22,000 rubles monthly, including VAT of 4,000 rubles.
Accounting
On the date of entry into force of the agreement:
- Obtaining rights to intangible assets. Account 012 (Off-balance sheet account): 1,470,000 rubles (150 000 + 22 000 * 12 month. * 5 years)
- Payment of a lump sum. Dt 60 "Settlements with suppliers and contractors — Ct 51 "Settlement accounts": 150,000 rubles
- Accounting for the lump sum contribution in the expenses of future periods. Dt 97 "Expenses for future periods" — Ct 60 "Settlements with suppliers and contractors": 130,000 rubles
- Allocation of VAT for a lump sum payment. Dt 19 "VAT on purchased valuables" — Ct 60 "Settlements with suppliers and contractors": 20,000 rubles
- Acceptance of VAT deductible. Dt 68 "Calculations on taxes and fees" — Ct 19 "VAT on purchased valuables": 20,000 rubles
Every month until the end of the contract:
- Write-off of part of the lump sum for current expenses. Dt 20 (26, 44) "Main production (General production expenses, Commercial expenses)" — Ct 97 "Expenses of future periods": 2,167 rubles (130,000 / 5 years / 12 months)
- Royalty accrual. Dt 20 (26, 44) "Main production (General production expenses, Commercial expenses)" — Ct 60 "Settlements with suppliers and contractors": 15,000 rubles
- Allocation of VAT on royalties. Dt 19 "VAT on purchased valuables" — Ct 60 "Settlements with suppliers and contractors": 4,000 rubles
- Acceptance of VAT deductible. Dt 68 "Calculations on taxes and fees" — Ct 19 "VAT on purchased valuables": 4,000 rubles
- Payment of royalties. Dt 60 "Settlements with suppliers and contractors" — Ct 51 "Settlement accounts": 20,000 rubles
Tax accounting
Lump sum payment:
- Depreciation accrual. In tax accounting, a lump sum contribution can be written off through depreciation. The amount of depreciation of the lump sum for one month will be: 130,000 / 5 years / 12 months. = 2,167 rubles.
- VAT on a lump sum payment. VAT is deducted immediately upon payment of the lump sum and receipt of the invoice.
Royalty:
- Accrual of royalties. In tax accounting, royalties are recorded as expenses in the amount of 20,000 rubles per month.
- VAT on royalty. VAT in the amount of 4,000 rubles per month is deducted after payment of royalties and receipt of an invoice.
The figures in the calculations are approximate and may differ from the actual percentages.
How to optimize accounting and tax accounting?
With the help of modern accounting services. Here are some decent options:
1. Scloud
This is a cloud rental program for 1C accounting. More than 50 solutions for business automation and accounting in the leading program via the Internet from 760 rubles per month; the first two weeks are free.
Suitable for sole proprietors on the USN "Income", as well as sole proprietors and LLC on the USN. Calculates taxes and insurance premiums, generates reports and sends them to the tax service. For T-bank customers — six months of free service.
An online service for a larger business. It is suitable for companies working on the USN, OSNO and UTII, with up to 100 employees. In addition to accounting and tax, it provides personnel accounting, payroll, electronic document management, and so on. From 800 rubles per month; there is a free trial period of 14 days.
When choosing a service for conducting business finance, carefully study all its terms and reviews from other users.
Conclusion
Accounting and tax accounting are slightly different forms of financial accounting, which should be compiled by every business owner, including a franchise. In both cases, it is important to properly account for lump-sum contributions, royalties and additional expenses in order to optimize the tax burden and avoid problems with the law.
- All business owners keep financial records — it is easier to do this with the support of the franchisor. Join the CODDY Programming School team and grow your business with us.
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