Rewards-based Crowd Funding – Why Start-ups need to understand the VAT aspect
11th August 2015
There’s no shortage of survey commentary in the business pages through the year to evidence how small businesses fear the complexities of the VAT legislation. A recent commentary from a Direct Line for Business commissioned survey suggested that around one in ten respondents had limited sales to ensure they remained below the VAT registration threshold.
Continuing pressures on accessing funding for small and medium sized business has seemingly added a further complication – with the growth in Crowd Funding as a route to raise monies to finance a business idea, creation or production.
For the vast majority of crowd funding projects where a share in the equity is the supply for the consideration of funding provided then nothing significant has changed from the VAT perspective. The challenge is in the area of “reward-based” crowd funding where in return for the finance provided the business enters into a promise to deliver some tangible benefit to the funder – some goods to be generated by the business in the future, a discount or voucher package perhaps?
In a sense this is nothing new from the VAT perspective – VAT is all about recognising whether you have made a supply of goods or services in exchange for a “consideration”. The issue with “reward-based” funding is the fact that you are giving a tangible benefit back having received the monies. It’s not a concern where the funder takes an equity share but is a concern where other tangible goods and services are supplied by the business concerned, would be seen as taxable business supplies for VAT purposes – future beer produced from a micro-brewery or digital services from an “app” developer for example.
So the challenge is not to confuse the phrase “funding” with the actuality of a “payment in advance” for supplies of goods or services that you may give to the person from whom you are receiving the monies. Such activities will count towards the need to consider your VAT registration position even before you may have started to “trade”.
Liz Maher: Director Centurion VAT Specialists Ltd
© Centurion VAT Specialists Ltd www.centurionvat.com email@example.com
Centurion was founded in 1998 and since then it has grown to include five senior level VAT practitioners who have expertise in all sectors including education, third sector, housing associations and manufacturing. The team was awarded the Taxation Best VAT UK VAT Team in 2013.
Tories plan VAT tax bombshell after election - hitting struggling families with financial blow - Mirror.co.uk
21 April 2017 20:17
Could a tax on meat help us save the planet? - The Guardian
21 April 2017 05:50
UK lost up to £1.5bn from VAT evasion by foreign online retailers - Financial Times
19 April 2017 16:22
Investment Trusts Lose VAT Battle In UK Supreme Court - Law360 (subscription)
11 April 2017 19:44
Reality Check: Do Labour's sums add up on free school meals? - BBC News
6 April 2017 18:31
VAT on fees? Our greedy private schools have it coming - Spectator.co.uk (blog)
6 April 2017 08:35
Criminal gangs use UK ports to defraud EU customs - BBC News
5 April 2017 20:03
Uber faces big VAT bill if tax campaign wins in UK court - International Tax Review
30 March 2017 16:52
More on the UK Government consultation that marketplaces collect VAT - Tamebay
30 March 2017 08:34
UK Considers Response To Construction Industry VAT Fraud - Tax-news.com
29 March 2017 16:13