KickstarterForum.org

OK, so I just started my first Kickstarter with the expectation that I would need to collect UK VAT (I am a UK based VAT registered company) on all pledges made from the UK and EU.

However, I got to thinking about it and wondered whether the pledges were in fact taxable?

The money collected is a pledge/investment - not a purchase.
The return is in the form of a reward/gift to the investor - it's not a sale.

So surely sales tax/VAT should not apply in this situation?

Has anyone got any concrete guidance before I call my accountant/HMRC?

Hey Sam,

I realize you are in the UK and your question concerns VAT rather than income tax issues here in America, but I thought this article might be helpful:

http://www.forbes.com/sites/cameronkeng ... ax-audits/

While I do not know the answer to your question and it's probably best addressed by a tax professional, here are my thoughts nonetheless:

As a UK based VAT registered company you have a duty and obligation to collect sales tax/VAT. Taking the position that money collected through pledges is not a purchase is risky in my opinion. I think tax authorities would classify "rewards", "pledges" and "gifts" as sales and accordingly would expect sales tax and VAT to be collected accordingly. I suppose you could make the case that pledges were in fact donations or gifts, but I do not think you would have a convincing argument. Backers on Kickstarter expect something tangible in return. People who donate or gift do not. As a result pledges in my opinion are more like sales than gifts.

James

Here are a few more articles on the subject of UK taxes for Kickstarter campaigns:

http://www.forbes.com/sites/suwcharmana ... -tail-tax/
http://www.fastcodesign.com/1672681/lif ... d-designer

One campaigner's VAT rebates for backers outside the EU
http://www.kickstarter.com/projects/ins ... sts/579306

The tax advice I was given is that Kickstarter funding is income and is taxable. If I do not offset the income with costs for freelance services and printing in the same year, I will be taxed for the full amount, even if I plan to spend the costs in the following year. It is my intent with my KS funding to spend the bulk of it this year (the same year the Kickstarter funding was acquired).

Calling it a pledge is KS terminology, not a legal classification for a donation. A KS pledge is income and thus taxable.

(Note: I am a US company, and have no knowledge of everyone else's situation.)

Thanks for the feedback all. I guess where I see a potential grey area is that if you consider the pledge an investment (the kickstarter rules I believe state it as such and there is no legal obligation to deliver the reward) and the reward is repayment of that loan then there should not be any VAT payable. Sadly it's not a court case I could afford to take up, but I think it is ambiguous....

Thanks for the feedback all. I guess where I see a potential grey area is that if you consider the pledge an investment (the kickstarter rules I believe state it as such and there is no legal obligation to deliver the reward) and the reward is repayment of that loan then there should not be any VAT payable. Sadly it's not a court case I could afford to take up, but I think it is ambiguous....