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Sponsorship (VAT Notice 701/41) has been updated for the treatment of mixed sponsorship and donations and the claiming of input tax on the prizes from competitions. The notice also contains a section on crowdfunding. HMRC states:

‘Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case. For example:

  • where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar
  • where the funder receives goods or services that have a real value associated with them (for example, clothing, tickets, DVDs, film viewings), VAT will be due
  • where the payment is for a combination of the 2 examples, if it’s clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation
  • it might be that the funding takes the form of an investment where the funder is entitled to a financial return such as interest, dividends or profit share – in these cases, any payment due to the funder will not be liable to VAT, unless the arrangement is more by way of a royalty based on a supply of intellectual property or some other benefit – in these circumstances the ‘profit share’ is likely to be consideration for a supply, the reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes.’

Article from ACCA In Practice