ECSH44420 - Franchise guidance

Identifying franchises

In the course of dealing with an application you may identify that a business appears to be operating from a premises that it has not included in its registration. This address may meet the definition of a franchise.

This may be identified through:   

  • open-source checks e.g., looking at business website, or on receipt of information from the business 
  • contact from a franchisor to query whether a franchisee needs to be included to its registration or if the franchisee needs to register in its own right
  • contact from a franchisee to query if it should be included in its franchisor’s registration or apply for registration in its own right.

Caseworker action

Where additional premises are identified, you should contact the business to advise that these addresses may need to be included in its registration. You can either contact the business by issuing a secure communication to its government gateway account or via email and advise it to:

  • include the additional premises in its registration or, 
  • present it with an opportunity to advise why it does not think that the additional premises should be registered.  

Where the business contacts HMRC to query whether a franchisee needs to be included in its franchisor’s registration, or register in its own right, you should refer the business to the guidance in ECSH44325 and request that the business inform HMRC as to which party is responsible for compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). If the business is in any doubt, you should request a copy of its franchise agreement.

Requesting a copy of a franchise agreement

If there is any doubt about who is responsible for the registering for anti-money laundering supervision you should request that the business provides you with a copy of its franchise agreement.

When inspecting the franchise agreement document you should consider:

  • The roles and responsibilities of both parties to determine who needs to register. 
  • The date that the franchise agreement started, so you can determine whether a type 2 penalty for trading whilst unregistered is appropriate. Further guidance on type 2 penalties is available in ECSH82795.

Once you have determined which party is responsible for compliance with MLR 2017, you should inform the business of your decision:

  • If the franchisor is responsible for the franchisee’s compliance with MLR 2017, you should inform the business that the franchisee should be included as a premises within its franchisor’s registration with HMRC. If the franchise agreement has been in place for over 30 days, you should consider issuing a type 3 penalty.  Further guidance on type 3 penalties is available in ECSH82800.
  • If the franchisee is responsible for its compliance with MLR 2017, you should inform the business that the franchisee must apply for anti-money laundering supervision in its own right.  You should update the Economic Crime - Supervision (EC-S) Watchlist with the details of the franchisee and state that it may be due a type 2 penalty for trading whilst unregistered. Once the franchisee submits its application to register with HMRC, consideration will be given to whether a penalty for trading whilst unregistered is appropriate. Further guidance on the EC-S Watchlist is available in ECSH34235. Further guidance on type 2 penalties is available in ECSH82795.

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)