Taxation of crowdfunding pledges

Posted: 23rd January 2018

Tax CalculationIn what will be viewed as a serious blow to the crowdfunding community, a tribunal has ruled that a company that obtained venture capital to finance a pioneering trip to the moon was liable to pay VAT immediately on receipt of the six-figure sum raised.

The company’s objective was to send an unmanned robotic landing module to the south pole of the moon. Online investors who pledged money via a crowdfunding site were promised various benefits if the project came to fruition.

Those included the right to have digital information and strands of hair placed in a time capsule taken to the lunar surface. A total of £672,447 was raised from over 7,000 backers, who were issued with redeemable vouchers and certificates recording their investments.

There was no dispute that there had been a taxable supply in the form of rewards to be provided to backers in the future, and HM Revenue and Customs (HMRC) took the view that VAT was payable on the money raised at the time it was received by the company.

On that basis it was submitted that the company ought to have registered for VAT when the project was first advertised on the crowdfunding site. The company, however, argued that the correct tax point was the date on which the vouchers issued to backers were redeemed.

In ruling on the company’s challenge to HMRC’s stance, the First-tier Tribunal (FTT) accepted that, given the considerable uncertainty as to whether the lunar mission would ever in fact launch, the money raised could not be viewed as pre-payment for services to be provided in the future.

In rejecting the company’s appeal, however, the FTT found that the vouchers issued to backers were for a single purpose, within the meaning of Schedule 10A of the Value Added Tax Act 1994. The provision of digital and physical space within the time capsule represented a single type of goods or services. VAT was therefore payable when the vouchers were issued.