Crowdfunding - it needn't cost the Moon

22 February 2018

Crowdfunding is fast becoming the go-to solution for new businesses looking to raise a bit of extra capital. Following some notable success stories of crowdfunding appeals, surely there is no down side.

That was what Lunar Missions Limited thought. Their business proposition was to raise £600,000 in order to send a robot to drill 20 meters into the surface of the moon in order to collect important scientific data.   It launched an appeal for crowdfunding whereby, in return for a payment of £60, the investor received the promise of digital or physical space in a time capsule that was to be buried on the moon at the drill site. The physical space was intended to be enough to include a strand of hair. The digital space offered could be used by investors to include photographs.

HMRC became aware of the crowdfunding appeal and argued that the payments received were consideration for a taxable supply and, as the value exceeded the VAT registration threshold, Lunar Missions had a liability to register for VAT and account for the VAT deemed to be included in the pledges. In Lunar Missions Limited v HMRC [2018] TC06286, the First-Tier Tribunal (FTT) dismissed the appeal and found in HMRC’s favour.

It was accepted that where there is a reward given to backers in return for the crowdfunding payment, there is a taxable supply in the form of those rewards. However, for Lunar Missions, as there is some doubt as to whether the reward would ever be redeemed, it was necessary to consider the time of supply:

  • If the amounts pledged were prepayments for goods or services, then the time of supply is the date of the payment.
  • Alternatively, the supply could be seen as the supply of a face value vouchers.   If it could be seen as a face value voucher, it is then necessary to consider whether the vouchers are multi-purpose (MPV) or single-purpose (SPV):
    • MPVs allow the receipt of different types of reward and, as such, it is not possible to confirm what the voucher will be used for until redemption. Consequently, the time of supply is on redemption, when the reward is provided,
    • SPVs only allow a single type of reward and are subject to VAT on purchase.

What does this mean if you are raising crowdfunding?

When setting up your crowdfunding project, it is vital that you understand the impact of VAT on your fundraising.

For lesser pledges, the investor often receives a nominal reward. For example, they may get a regular update on a particular project or a minor recognition of their payment. These minor pledges are treated as donations with any reward being to inconsequential to constitute a supply for VAT purposes.

However, if you provide something tangible, for example, the promise to provide a specific product in return for the funding, this will be a supply for VAT purposes and VAT will be due when you receive payment. However, if the investor is offered a choice of rewards for their pledge, this could count as the issue of an MPV and the VAT would only be due on redemption of the voucher.

If you simply offer a discount card in return for the funding, this would be a standard rated supply and again, VAT would be due when the payment is received.

There are clearly many issues to consider when looking at crowdfunding and it is important that VAT is not forgotten. If you would like more information, please contact Alistair Duncan, Indirect Tax Director ( or your usual AAB contact.

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