VAT registration after Crowd-Funding receipt

VAT registration after Crowd-Funding receipt

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A start-up business is planning to use a crowd-funding site to generate initial orders for a new product.

The target is to initially raise around £25k. If the crowd-funding is successful, this cash would be received around January 2015.

As the business is not VAT registered yet, and the cash received will be well below the VAT threshold, no output VAT will be payable in respect of this receipt.

The owner wishes to register for VAT shortly after receipt of the money, so that he can reclaim input VAT on the materials he buys to fulfil the crowd-funded 'orders', but as the tax-point for the 'sale' is the date of the receipt of the cash rather than the despatch date of the goods, no output VAT will be accounted for.

This feels wrong to me, but are there any VAT rules or legislation that stops this from being done?

Thanks

Replies (10)

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By Peter Kilvington
05th Nov 2014 08:59

VAT registration

We have two issues to look at here.

Firstly the receipt of the crowd funding money will either be a loan, a subscription for shares or a combination of the two.  These items are nothing to do with VAT and do not impact on any VAT calculation at all.

The second issue is VAT registration.  There is nothing wrong at all with registering for VAT and reclaiming the input tax before any sales are made, it is a standard position in any start-up business.

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Replying to Tax Dragon:
Stepurhan
By stepurhan
05th Nov 2014 09:13

Crowdfunding

Peter Kilvington wrote:
Firstly the receipt of the crowd funding money will either be a loan, a subscription for shares or a combination of the two.  These items are nothing to do with VAT and do not impact on any VAT calculation at all.
Actually, a crowd-funding receipt is extremely likely to be neither of those. Crowd-funders receive rewards which vary depending on the level of funding provided. These will often be "free" copies of the product being crowd-funded but can include other items unique to the crowd-funding project itself.

The reclaim of the input VAT is tied to it being related to VAT sales. If the crowd-funding receipts are all pre-registration (and hence not VAT sales), then any purchases to fulfill them are, by definition, not related to VAT sales. Even though the purchases are made post-registration, they are all used up in pre-registration sales.

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By mrme89
05th Nov 2014 09:04

I don't agree with Peter. If the Crowfunding is in return for goods or services (which can often be the case), then there's a supply for vat purposes. 

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By Wanderer
05th Nov 2014 09:11

Before you register do the maths, VAT registered or not.

You will probably find that the trader is better off waiting until VAT registration become compulsory.

 

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By SwanseaJack
05th Nov 2014 09:19

Supply of goods

I am fairly certain that it is a supply of goods - and the issue regarding the tax-point has previously been addressed in Any Answers.

https://www.accountingweb.co.uk/anyanswers/question/kickstarter-funds

But I cannot find any information for a situation where the tax point for the sale (ie. receipt of the cash) is before registration, but the tax point for the associated input VAT is after registration.

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By Peter Kilvington
05th Nov 2014 09:53

Do I have the wrong end of the stick?

May have the wrong end of the stick here.

Having read the post again I am confused as to what the £25K receipt will be, is it possible to give more detail about this please. 

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By StartUpAcc
05th Nov 2014 10:20

Interested in legislation

I too am very interested in this point.

The tax point does appear to be at the point the monies are received. It feels wrong that VAT can be reclaimed on the purchases to fulfill those sales BUT is there actually anything in legislation to prevent this?

 

FYI another related Aweb question here:

https://www.accountingweb.co.uk/anyanswers/question/vat-registration-adv...

 

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Replying to The Dullard:
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By SwanseaJack
05th Nov 2014 13:55

Input VAT cannot be claimed

StartUpAcc wrote:

I too am very interested in this point.

The tax point does appear to be at the point the monies are received. It feels wrong that VAT can be reclaimed on the purchases to fulfill those sales BUT is there actually anything in legislation to prevent this?

I think that I have found the answer - 

Schemepanel Trading Ltd 1996 STC 871

The company claimed input tax that related to supplies made before it had registered. The Court had to rule on the interpretation of VAT Act 1994 section 24. It held that the law restricts the definition of input tax to tax on supplies made to a taxable person who was also a taxable person when they used those supplies. The disputed supplies received by the company were the cost components of supplies made by it which were not chargeable to tax. They were effectively outside the VAT system and did not confer a right to deduct input tax.

 

 

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By SwanseaJack
05th Nov 2014 10:24

£25k receipt

The business is planning to run a Kickstarter campaign, with backers pledging specific amounts of money - they will then receive 'rewards' in the form of products that are manufactured.

For example, a backer pledging £500 will receive a reward of Product X or a pledge of £600 gives a reward of product Y (ie. product X with extra bells & whistles).

Kickstarter collect the money when the project is fully subscribed, and pass it on to the promoter (less their fees) at that time. Depending on the product, it can be weeks or months between the receipt of the funds and the supply of the rewards.

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By vince111
11th Feb 2015 04:02

These items are nothing to do with VAT and do not impact on any VAT calculation at all.

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