It is always tough to raise funds to develop new inventions into viable products, but crowdfunding websites can help. The prospective investors are asked to commit to a set level of funding, and in return each is promised a package of rewards, tailored according to the value of their pledge.
When you use such a crowdfunding arrangement, you need to be clear about the VAT implications of those reward packages, to ensure that VAT is accounted for at the right time and on the right amount.
HMRC treat the promise of rewards as a voucher for VAT purposes, or sometimes as a pre-payment for goods or services. If the reward comprises just one product, the VAT treatment is simple; the VAT is due when the investor hands over his money.
Complications arise when the reward package includes a number of items or services which carry different VAT rates. The package is treated as a multipurpose voucher and the VAT is due when the investor receives his rewards.
The difference in the VAT point (i.e. the date on which the transaction takes place for VAT purposes) between a single product voucher and a multipurpose voucher can be a considerable time period. If your business has not already registered for VAT when it starts to receive money through crowdfunding, the package of rewards can determine when you must register for VAT.
Our VAT experts are happy to advise on all the tax aspects of crowdfunding, so don’t leave tax as an afterthought.