Tag Archives: VAT-start-up

VAT: Crowdfunding – What is taxable?

By   9 April 2026
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What is crowdfunding?

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet on specifically designed platforms and is an alternative to traditional ways of raising finance. The model is usually based on three parties: the project initiator who proposes the idea or project to be funded, individuals or groups who support the idea, and a moderating organisation (the “platform”) that brings the parties together to launch the idea.

Crowdfunding is a major, growing source of funding for startups, charities, and creative projects, with the global market predicted to grow annually by around 15% from 2026 to 2033 with platforms like Kickstarter, Seedrs, Crowdcube, and GoFundMe being major players.

VAT Treatment

The VAT treatment of supplies that might potentially be made is no different to similar financing arrangements, for example; sponsorship, donations and investments made through more traditional routes. Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case.

Examples

Donations

  • where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar

Goods and/or services

  • where the funder receives goods or services that have a real value associated with them, for example; clothing, tickets, DVDs, film viewings, output tax will be due

Combination

  • where the payment is for a combination of the two examples above, if it is clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation and the supply will be taxable. If a donation element cannot be carved out, it is likely that all of the payment will be considered as VATable

Investment

  • where the funding takes the form of an investment where the funder is entitled to a financial return such as; interest, dividends or profit share, any payment due to the funder is unlikely to be liable to output tax, The reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes

Royalties

  • if the arrangement is that the funder receives royalties based on a supply of intellectual property or some other similar benefit the payment is likely to be consideration for a taxable supply and output tax will be due

Loan-based 

  • Individuals lend money to businesses or people for interest payments. The making of any advance or the granting of any credit is exempt.

VAT registration 

If income from the sources above which are deemed to be subject to VAT exceeds the VAT registration limit (currently £90,000 in any twelve-month period) the person, in whichever legal identity, such as; individual, company, partnership, Trust etc will be liable to register for VAT. If income is below this limit, it will be possible, but not mandatory to VAT register. The benefits of voluntary registration here.

Input tax recovery

If VAT registered, any input tax incurred on costs relating to crowdfunding is usually recoverable (see here for exceptions). However, if the costs relate to donations or some types of investment then input tax claims are specifically blocked as they would relate to non-business activities. If exempt supplies are made, attributable input tax is generally blocked unless it is de minimis. 

Commentary

There can be difficulties in establishing the tax liability of crowdfunding and in a broader sense “sponsorship” in general. However, experience insists that the biggest issue is initially identifying that there may be a VAT issue at all. If you, or your clients are involved in crowdfunding, or have sponsors, it would be prudent to review the VAT treatment of the activities.

VAT: Top 10 Tips for small businesses and start-ups

By   8 December 2025
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VAT Basics
At some point it is likely that a small business or start-up will need to consider VAT. Here are a few pointers:
  1. Should you be registered for VAT?

If your income is above £90,000 pa of taxable supplies, you have no choice. But you can voluntarily register if below this threshold. There are significant penalties for failure to register at the correct time.

  • Advantages of VAT registration: VAT recovery on expenses plus, perhaps; gravitas for a business
  • Disadvantages: administration costs plus a potential additional cost to customers if they are unable to recover VAT charged to them (eg; they are private individuals) which could affect your competitiveness

More here

  1. Even non-registered businesses can save VAT
  • Look to use non-VAT registered suppliers, or non-UK suppliers (however, this may count towards your registration turnover)
  • If you are purchasing or leasing commercial property, consider looking for non-opted property or raise the issue of your inability to recover VAT in negotiations on the rent
  • Take advantage of all zero and reduced rates of VAT reliefs available
  • Challenge suppliers if you consider that a higher rate of VAT has been charged than necessary
  1. Consider using the appropriate simplification scheme 
  • Flat Rate Scheme (1% discount in first year of registration)
  • Cash Accounting (helps avoid VAT issues on bad debts)
  • Annual Accounting (can generate real, cash flow and/or administrative savings)
  • Margin schemes for second-hand goods

Further details here and here

  1. Make sure you recover all pre-registration and/or pre-incorporation VAT

VAT incurred on goods on hand (purchased four years ago or less) and services up to six months before VAT registration is normally recoverable.

  1. Are your VAT liabilities correct?

Many businesses have complex VAT liabilities (eg; financial services, charities, food outlets, insurance brokers, cross border suppliers of goods or services, health, welfare and education service providers, and any business involved in land and property). A review of the VAT treatment may avoid assessments and penalties and may also identify VAT overcharges made which could give rise to reclaims. Additionally, these types of business are often restricted on what input tax they can reclaim. Check business/non-business apportionment and partial exemption restrictions.

More on charities here

  1. Have you incurred VAT elsewhere outside the UK?

You may be able to claim this from overseas tax authorities. Details here

  1. Do you recover VAT on road fuel or other motoring costs?

Options for VAT on fuel: keep detailed records of business use or use road fuel scale charges (based on CO2 emissions)

If you need a car; consider leasing rather than buying. 50% of VAT on lease charge is potentially recoverable, plus 100% of maintenance if split out on invoice.  VAT on the purchase of a car is usually wholly irrecoverable.

More here

  1. Remember: VAT on business entertainment is usually not recoverable but VAT on subsistence and staff entertainment is. 
  1. Pay proper attention to VAT
  • keep up to date records
  • submit VAT returns and pay VAT due on time (will avoid interest, potential penalties and hassle from the VAT man)
  • claim Bad Debt Relief (BDR) on any bad debts over six months old
  • contact HMRC as soon as possible if there are VAT payment problems or if there are difficulties submitting returns on time
  • ensure that the business is paying the right amount of tax at the right time – too little (or too late) may give rise to penalties and interest – too much is just throwing money away
  • check the VAT treatment of ALL property transactions

More here

  1. Challenge any unhelpful rulings or assessments made by HMRC

HMRC is not always right.  There is usually more than one interpretation of a position and professional help more often than not can result in a ruling being changed, or the removal or mitigation of an assessment and/or penalty.

We can assist with any aspect of VAT. You don’t need to be a tax expert; you just need to know one… We look after your VAT so you can look after your business.