Usually, yes. If the franchisor is VAT-registered, it normally charges VAT at the standard rate on the initial franchise fee and on ongoing fees. Whether that's a real cost to you depends on whether your business is VAT-registered.
If you're VAT-registered
You can usually reclaim the VAT you pay on franchise fees as input tax, so it's a cash-flow timing cost rather than a permanent one.
If you're not VAT-registered
The VAT is a cost to the business. You must register once your taxable turnover goes over the VAT registration threshold, currently £90,000 over a rolling 12 months. You can also choose to register below it. Check the current threshold on gov.uk.
VAT before you register
HMRC allows some VAT paid before registration to be reclaimed, with time limits. Ask your accountant whether this applies to your franchise fee and set-up costs.
Why it matters for finance
- Budget for the VAT on top of the quoted fee, even if you'll reclaim it later.
- Include it in your cash flow until any refund arrives.
This is general information, not tax advice. Speak to an accountant about your own position.
Last reviewed: 8 October 2026