Franchise vs independent business UK: which costs less to start?

What to take away

Where the two routes separate

Legal set-up costs are small and published. Both routes need a legal structure, a tax registration and, if you take on staff, employer's liability insurance.

Companies House sets and publishes its fees, and raised the online incorporation fee to £50 on 1 May 2024. A confirmation statement then costs £34 each year.

A sole trader pays nothing to Companies House but still registers for Self Assessment with HMRC.

So registration is not where the cost gap opens. The franchise fee and everything around it is.

What a franchise fee actually buys

Franchisors set their own fees, and no central body publishes a UK market rate. A home-based model can sit in the low thousands, while a unit with premises often runs into five figures.

In exchange you normally receive initial training, the right to trade under the brand in a defined territory, an operations manual and launch support. Stock, equipment and any premises fit-out are usually extra.

That distinction matters when you compare quotes. A cheap fee with a heavy fit-out obligation can cost more than a larger fee on a van-based model. If your budget is tight, franchise opportunities under £10k exist, but check what the fee excludes before you get excited.

The ongoing cost you cannot see in the fee

Royalties, sometimes called management services fees, are usually charged as a percentage of turnover. National marketing levies often work the same way. A few franchisors charge a fixed monthly fee instead, which is easier to forecast but does not fall when sales drop.

A royalty of 6% on an illustrative turnover of £200,000 is £12,000 a year, due whether that month traded at a profit or not. An independent business keeps that money instead.

On lower sales the same 6% rate costs less: at £120,000 turnover the fee falls to £7,200. Rates and definitions vary, so how royalty fees are structured is worth checking before you model profit.

Tax and VAT: the same rules for both

Corporation tax, administered by HMRC, does not distinguish between a franchise and an independent company. Since April 2023 the small profits rate has been 19% on profits up to £50,000, the main rate 25% above £250,000, with marginal relief between the two.

Registering for VAT becomes compulsory once taxable turnover passes £90,000 in any rolling 12 months, a threshold set on 1 April 2024.

Most franchisors add VAT to their fees if they are registered, so a £20,000 fee can arrive as a £24,000 bill. Check that before you sign.

One real difference: a royalty is a business expense that reduces taxable profit, while an independent owner's brand spending is discretionary and easier to pause.

Worked comparison: opening costs side by side

The table uses illustrative figures, not a franchisor's quote. The £23,100 gap is the price of the brand, the manual, the training and the launch support, and it is the number to test against your own projections.

Working capital usually decides whether a new unit survives its first quiet quarter, on either route.

Common questions

Does a franchise cost more to start than going independent?

Usually, yes. Registration and tax set-up costs are near identical, and the franchise fee sits on top of them.

Is a franchise less risky than going independent?

There is no official UK register of franchise failure rates, so any survival percentage in a sales pitch should be traced to a source you can check. A franchise removes some systems and marketing risk, but it does not remove demand risk.

Which route costs more over five years?

It depends on turnover. A royalty grows with sales, so a strong franchise can pay far more in fees than an independent pays for its own branding. Model both at the same revenue.

Can I switch from independent to franchise later?

Yes. Some operators trade independently first to test demand, then buy a franchise in an adjacent category. Check any restrictive covenants in contracts you have already signed.