3

I'm intending to run a crowdfunding campaign at the beginning of next year, for a project that will take a number of years to complete. I want to try to understand a little more about how any income earned from that would be affected by tax.

Specifically, I'm based in the UK and I'm a self-employed individual, not associated-with or an owner of any company. My knowledge of accounts is limited, so if anyone is kind enough to provide an answer, it would be greatly appreciated if you could keep things as jargon-free as possible.

My question, specifically:-

If I were to secure funding of (for example) £100,000, and these funds were intended to cover my own wages and project expenses over a 3-year development period, would it be possible to be taxed at £33,333 per year, or would I have to be taxed on the full amount (at the higher tax bracket) during the year in which those funds were raised?

Thanks in advance for any thoughts.

mhoran_psprep
  • 148,961
  • 16
  • 203
  • 418
Hobbes
  • 133
  • 1
  • 4

1 Answers1

7

I think you should really start a limited company for this. It'll be a lot simpler to spread the income over multiple years if your business and you have completely separate identities. You should also consult an accountant, if only once to understand the basics of how to approach this.

Having a limited company would also mean that if it has financial problems, you don't end up having to pay the debts yourself.

With a separate company, you would keep any money raised within the company initially and only pay it to yourself as salary over the three years, so from an income tax point of view you'd only be taxed on it as you received it.

The company would also pay for project expenses directly and there wouldn't be any income tax to pay on them at all.

You would have to pay other taxes like VAT, but you could choose to register for VAT and then you'd be able to reclaim VAT on the company's expenses but would have to charge VAT to your customers. If you start making enough money (currently £82,000/year) you have to register for VAT whether you want to or not.

The only slight complication might be that you could be subject to corporation tax on the surplus money in the first year because it might seem like a profit.

However, given that you would presumably have promised something to the funders over a three year period, it should be possible to record your promises as a "liability" for "unearned income" in the company accounts. In effect you'd be saying "although there's still £60,000 in the bank, I have promised to spend it on the crowdfunded thing so it's not profit". Again you should consult an accountant at least over the basics of this.

Ganesh Sittampalam
  • 30,396
  • 8
  • 95
  • 119