VAT on crowdfunding

Many entrepreneurs seek funding for their bright ideas through crowdfunding sites such as Kickstarter. The prospective investors are asked to choose between set levels of funding, and in return are promised a package of rewards which varies according to the level of funding provided.

If you have used such a crowdfunding arrangement we need to be clear about the VAT implications of those reward packages, to ensure that VAT is accounted for at the right time.

HMRC treat the promise of rewards to the investor as a voucher for VAT, or sometimes as a pre-payment for goods or services. The voucher could be a single-purpose voucher or a multi-purpose voucher. Single purpose vouchers can only be exchanged for one type of product. Multi-purpose vouchers are those which are exchanged for alternative goods or services. Single and multi-purpose vouchers currently have different VAT treatments.

Say an author is crowdfunding their next publication. Investors in group A may be promised a hard copy of the book. This is a single purpose voucher or pre-payment, which creates a VAT point when payment is made by the customer – in this case the investor. Investors in group B are offered the choice between a hard copy of the book or an electronic version including regular updates. The reward to investors in group B is a multi-purpose voucher, and the VAT is not due until the investors receive their rewards.

The difference in VAT points between single and multi-purpose vouchers can be a considerable time period, and will determine when the business must register for VAT. This was illustrated in the case of Lunar Missions Ltd, who were funding research on the moon.

If you have any queries please contact our office for advice.

 

Written by the Tax Advice Network