Crowdfunding (UK)

In the UK, crowdfunding is a means of raising money for a business or project through small contributions. These contributions are made by a large number of people, often strangers. Examples of crowdfunding platforms include Unbound, Patreon and SeedInvest.

There are 4 common methods of crowdfunding currently circulating in the UK:

1. Donation crowdfunding

You would use this method if you’re a charity because it involves asking for donations to support a charitable cause, such as GoFundMe.

2. Reward crowdfunding

You can fund a project in exchange for non-financial benefits like gifts, samples, or tickets to an event. A common example of this that you may have heard of is Patreon, where a donation to a creator gets you access to additional podcast content or early access to tickets etc.

3. Equity crowdfunding

Through this approach, you would make a financial contribution to a project in exchange for shares or a stake in the new business. This is common for small businesses in distress, or like a small scale Dragon’s Den!

4. Debt crowdfunding

Similar to equity crowdfunding, this involves taking out many loans from multiple investors. It’s also called peer-to-peer lending (P2P)

How does crowdfunding work with tax in the UK?

Getting involved in crowdfunding could result in a lower tax bill. But it all depends on the project you’re funding. Here are the tax implications of each of the above forms of crowdfunding:

  • Donations – unless the project is a charity, no tax relief is available to the backer. If it is a charity, you can claim Gift Aid
  • Rewards – unfortunately, no tax reliefs here either as it’s technically an advance payment for a reward
  • Debt – you usually pay tax on earnings from P2P lending just as you would on savings interest. But if the project can’t pay back the loan, you might be able to claim “CGT Loans to traders relief” or Social Investment Tax Relief (SITR)
  • Equity – in most cases, you’ll pay Capital Gains Tax if you sell shares for a profit, and also tax on your dividends (if you received dividends)

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