VAT on crowdfunding

It depends on what backers get. Money given with nothing of real value in return is a donation outside the scope of VAT, while a pledge that buys a reward such as a product, ticket or download is payment for a supply and taxed accordingly. Share issues and loans raised through crowdfunding are not supplies by the business raising the money.

Is crowdfunding money subject to VAT?

HMRC does not have a special VAT regime for crowdfunding. VAT Notice 701/41, section 5, says the treatment is no different from similar arrangements such as sponsorship, donations and investments made through more traditional routes, and that whether the recipient must charge VAT depends on the facts in each case. The question is always the same: is the backer’s payment consideration for something the business gives in return?

HMRC’s VAT Finance Manual at VATFIN5550 groups campaigns into two families. Non financial models cover rewards and pure donations. Financial return models cover investment in shares or bonds and loans. The VAT answer differs for each, and a single campaign can mix more than one.

This page deals with VAT for a business raising money. Whether the money is income for income tax or corporation tax is a separate question, covered in is money raised on a crowdfunding page taxable.

When does a reward make a pledge payment for a supply?

VATFIN5550 says that where a backer receives goods or services with an intrinsic value, such as clothing, tickets or a DVD, there is a supply for VAT purposes and the VAT treatment follows the liability of those goods or services. Notice 701/41 gives similar examples of rewards with a real value, including film viewings.

So a backer who pledges £30 and receives a T shirt is buying a T shirt, and VAT at the standard rate of 20% is due on that supply if the business is registered. If the reward would be zero rated or exempt when sold normally, the same treatment applies. A reward campaign is often, in substance, a pre order campaign.

By contrast, VATFIN5550 says a contribution where the backer expects and receives nothing in return is a donation and not liable to VAT. The position is the same where all the backer receives is something of symbolic value, such as a mention in a programme. A thank you email, a name on a supporters page or a personal acknowledgement on social media will usually fall into that category. Where the acknowledgement promotes the backer’s own business, for example a logo display, it starts to look like sponsorship, which is covered in sponsorship and VAT.

What if a campaign mixes donations and rewards?

Many campaigns set reward tiers well above the value of the reward, or let backers pledge extra. Notice 701/41 says that where a payment is for a combination of a donation and a reward, and it is clear the donation element is optional, that part can be treated as a non taxable donation.

The word optional carries the weight. If the only way to get the reward is to pay the tier price, the whole tier price is normally the consideration for the reward, even if the reward costs far less to make. If the page sets a stated price for the reward and invites backers to add any further amount they choose, the extra can be treated as a donation. Campaign design and wording therefore decide the VAT.

How are equity and loan crowdfunding treated?

Equity. VATFIN5550 says that, following the Kretztechnik decision, a business issuing new shares or debt securities to raise finance is not making a supply for VAT purposes. Dividends paid to investors are outside the scope of VAT, and the redemption of a bond at maturity is outside the scope. A backer selling existing shares in the course of business makes an exempt supply.

Loans. In loan based crowdfunding, also known as peer to peer lending, the lender grants credit and receives interest. VATFIN5550 treats the interest as consideration for an exempt supply of credit, with the repayment of capital not part of the value. For the business borrowing the money, the loan itself is not a supply it makes.

Notice 701/41 adds a warning: a return described as a profit share can be consideration for a supply if it is really a royalty for intellectual property or payment for some other benefit. The tax position of individual lenders is in peer to peer lending and tax.

When is VAT due on reward pledges?

Reward campaigns usually collect money long before the rewards are shipped. Under the time of supply rules in Notice 700, paragraph 14.2.2, receiving a payment before the basic tax point creates a tax point for the amount received. VAT on a reward pledge is therefore normally due for the period in which the business receives the money, not when the reward is delivered. Our guide to VAT on deposits and advance payments explains the rule in more detail.

The value is the consideration the backer pays. Notice 700, paragraph 7.2, says the value of a supply depends on what you are given in exchange for it. The platform’s commission and payment charges are separate costs of the business. They are not deducted before working out output tax.

Do pledges count towards the VAT registration threshold?

Reward pledges do. GOV.UK defines taxable turnover as the total value of everything sold that is not exempt or outside the scope, including zero rated, reduced rated and standard rated goods. Registration is required if taxable turnover for the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days alone. A successful campaign can push a small business over the threshold in a single month, which is when the 30 day forward look test needs checking. Donations, share subscriptions and loans are not taxable turnover. See the VAT registration threshold for how the tests work.

Notice 701/41, paragraph 1.1, makes the same point for sponsorship income: it can make a business liable to register even when its other sales are below the limit.

How is the platform’s own fee treated?

VATFIN5550 says the treatment depends on what the platform actually does. If it acts as an intermediary arranging a financial transaction between the business and investors, its service can be exempt as intermediary services under item 5 of Group 5 of Schedule 9. If it simply provides technology for the project to advertise itself and is not involved in the funding arrangements, its service is taxable because it is purely technical. Reward and donation platforms generally fall into the second category, although any separate payment processing charge needs looking at on its own terms, as explained in VAT on card processing fees.

Many platforms are based outside the UK. VAT Notice 741A, section 5, says a UK business receiving taxable services from an overseas supplier accounts for VAT under the reverse charge, while exempt services are excluded from it.

How might a real campaign be treated?

Illustration only. A VAT registered brewery raises £24,000 on a reward platform:

Tier	Backers and money raised	VAT treatment
£10, name on the thank you wall	300 backers, £3,000	Donation, outside the scope
£60, case of beer and branded glass	300 backers, £18,000	Standard rated supply: VAT of £3,000 (one sixth)
£60 case plus an optional extra pledge	£3,000 of extras	Donation, as clearly optional

The brewery accounts for £3,000 of output tax in the return covering the date it receives the pledge money, even though the beer ships three months later. The platform’s 5% fee of £1,200 is a taxable service. As the platform belongs outside the UK, the brewery applies the reverse charge and reclaims the same amount as input tax.

What mistakes come up most often?

• Calling every pledge a donation. If backers get a product or ticket, it is a sale.
• Waiting for delivery. VAT is normally due when the money is received.
• Netting off the platform fee. Output tax is calculated on what backers pay.
• Ignoring registration. An unregistered business can cross £90,000 with one campaign.
• Assuming a share issue creates VAT. It does not, although the general test of what counts as business activity still applies to the project itself.

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Related Accountapedia entries

• Is money raised on a crowdfunding page taxable
• VAT group registration
• VAT on service charges
• The VAT control account
• Voluntary VAT registration

Sources

• GOV.UK: Sponsorship and vat notice 70141
• GOV.UK: Manual page VATFIN5550
• GOV.UK: Vat rates
• GOV.UK: Vat guide notice 700
• GOV.UK: Register for vat
• GOV.UK: Vat place of supply of services notice 741a

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.