Whether you owe tax on crowdfunding in the UK depends on what your backers get in return for their money. HMRC has no dedicated crowdfunding tax; it slots each pound raised into an existing category. A no-strings donation is usually tax-free for the recipient. Money raised in exchange for a product, a service, interest, or shares is taxable, and the rate and rules follow the model you used.
Four Models, Four Different Tax Outcomes
HMRC groups crowdfunding into a non-financial model (donations or rewards) and a financial return model (loans or equity).1HM Revenue & Customs. VAT Finance Manual – VATFIN5550 From there, the tax treatment splits four ways:
- Pure donations: not taxable income for the recipient.
- Rewards (backers get a product or service): trading income, taxed like self-employment.
- Peer-to-peer loans: interest is taxable savings income for the lender; the loan itself is not income for the borrower.
- Equity: no Income Tax on the money the company receives, but Capital Gains Tax applies when investors sell, and generous reliefs may apply on the way in.
A single campaign can sit in more than one box. If most backers pre-order a product but a few contribute with nothing expected in return, the pre-orders are trading income and the free contributions are gifts.
Donation-Based Crowdfunding
Money given freely, with nothing expected in return, is a gift. Campaigns for medical costs, memorial funds, or personal hardship typically fall here, and the recipient pays no Income Tax on what they receive.
The tax risk sits on the donor’s side. If a donor gives more than their Inheritance Tax exemptions and dies within seven years, the gift can be pulled back into their estate for IHT. Each person has a £3,000 annual exemption plus unlimited small gifts of up to £250 per recipient.2GOV.UK. Rules on Giving Gifts Unused annual exemption rolls forward one year only.3HM Revenue & Customs. Inheritance Tax Manual – IHTM14144 – Lifetime Transfers: Annual Exemption: Roll Over Provisions
Above those exemptions, gifts within three years of death are taxed at the full 40% IHT rate. Between three and seven years, taper relief drops the rate on a sliding scale from 32% to 8%.2GOV.UK. Rules on Giving Gifts For most crowdfunded donations this is academic; small contributions from many people stay well inside the exemptions. A single large backer giving thousands is where the rule bites.
Rewards-Based Crowdfunding
Once backers receive something of tangible value in return, HMRC treats the campaign as trading. That covers most Kickstarter-style projects: indie games shipping copies to backers, creators sending merchandise, product launches taking pre-orders. The money is trading income, taxed at your marginal Income Tax rate with Class 4 National Insurance on top for the self-employed.
HMRC decides whether you are trading using the “badges of trade”: profit motive, transaction frequency, the nature of what you sell, and how you finance and modify it.4HM Revenue & Customs. Business Income Manual – BIM20205 – Meaning of Trade: Badges of Trade: Summary Running a campaign that promises a product to hundreds of backers with a clear profit motive lands you inside the trading net.
The £1,000 Trading Allowance
If your total trading income across the tax year (crowdfunding plus any other casual trading) is £1,000 or less, you do not need to report it or pay tax on it.5GOV.UK. Tax-Free Allowances on Property and Trading Income Above £1,000 you can either claim the allowance in place of actual expenses or deduct your real costs. For any serious campaign, real costs will nearly always beat the flat allowance.
Rates and What You Can Deduct
Crowdfunding income adds to your other earnings and is taxed at your marginal rate. For 2026/27, the personal allowance is frozen at £12,570, the basic rate is 20% up to £50,270, higher rate is 40% up to £125,140, and the additional rate is 45% above that.6GOV.UK. Rates and Thresholds for Employers 2026 to 2027
Legitimate business costs come off before tax. For a rewards campaign that usually means manufacturing, shipping, platform fees, payment processing, marketing, and packaging. Interest on any loan-based crowdfunding you took out to fund the project is also deductible.
Self-employed creators also pay Class 4 NIC on profits: 6% between £12,570 and £50,270 and 2% above £50,270 for 2025/26.7GOV.UK. Self-Employed National Insurance Rates
The VAT Trap
VAT catches successful rewards campaigns off guard. Where backers receive goods or services with intrinsic value, HMRC treats the pledge as a taxable supply at the standard VAT rate for those goods.1HM Revenue & Customs. VAT Finance Manual – VATFIN5550 Pure donations do not carry VAT, and issuing shares in an equity round is not a supply for VAT purposes when the point is to raise finance.
You must register for VAT once your rolling 12-month taxable turnover crosses £90,000.8GOV.UK. How VAT Works: VAT Thresholds A viral campaign can pass that figure in a single funding window. Because pledges land as one lump of turnover, creators often notice only after they have already sold at prices that did not include VAT, which then comes out of their own margin.
Peer-to-Peer Lending
In loan-based crowdfunding, a business borrows through a platform and repays with interest. The loan itself is not taxable income for the borrower because it must be repaid, and the interest paid is normally deductible as a business expense.
For lenders, interest received is taxable as savings income at your marginal rate. The personal savings allowance (£1,000 for basic rate taxpayers, £500 for higher rate) can shelter some of it. If a peer-to-peer loan goes bad, you can claim relief against other peer-to-peer interest, carrying any unused loss forward for up to four years.9HM Revenue & Customs. Savings and Investment Manual – SAIM12140 – Calculating Peer to Peer Tax Relief
You can also take the interest out of the tax net entirely by lending through an Innovative Finance ISA. Interest earned inside the IFISA wrapper is tax-free.10GOV.UK. Income Tax – Crowdfunding and Individual Savings Accounts
Equity Crowdfunding
Equity crowdfunding hands investors real shares in the company. Money the company receives is a capital contribution, not income, so no Income Tax or Corporation Tax bites at that point. The tax question moves to the investor and their eventual exit.
Capital Gains Tax on Exit
Selling those shares at a profit creates a capital gain. For 2026/27 the annual exempt amount is £3,000 per individual.11GOV.UK. Capital Gains Tax Rates and Allowances Gains above that are taxed at 18% for basic rate taxpayers and 24% at higher or additional rate.
Business Asset Disposal Relief can lower the bill for founders and employee-shareholders. The BADR rate is 14% from 6 April 2025 to 5 April 2026, then 18% from 6 April 2026, with a £1 million lifetime cap on qualifying gains.12GOV.UK. Business Asset Disposal Relief To qualify on crowdfunded shares you need to have been an employee or officer of the company and held at least 5% of both shares and voting rights for at least two years before the sale, so most passive equity crowdfunding investors won’t meet the test.
SEIS and EIS Relief for Investors
The two venture capital schemes are the reason many investors pick equity crowdfunding at all. Both require newly issued ordinary shares in a qualifying company, and the company will issue an SEIS3 or EIS3 certificate that you attach to your tax return.
The Seed Enterprise Investment Scheme (SEIS) targets very early-stage companies. It gives 50% Income Tax relief on investments up to £200,000 per tax year, so a £10,000 investment cuts your tax bill by £5,000.13GOV.UK. Tax Relief for Investors Using Venture Capital Schemes Hold the shares for at least three years with full Income Tax relief claimed and any gain on sale is exempt from CGT.14GOV.UK. HS393 Seed Enterprise Investment Scheme – Income Tax and Capital Gains Tax Reliefs A reinvestment relief can also exempt up to half of a separate capital gain that you plough into SEIS shares.
The Enterprise Investment Scheme (EIS) covers slightly larger companies and gives 30% Income Tax relief on up to £1 million a year, rising to £2 million if at least £1 million goes into knowledge-intensive companies.13GOV.UK. Tax Relief for Investors Using Venture Capital Schemes A £50,000 EIS investment cuts your tax bill by £15,000. Hold the shares for three years and any gain on disposal is CGT-free. EIS also lets you defer a gain from any other asset by reinvesting into EIS shares within one year before or three years after the gain arises; the deferred gain comes back into charge when you sell the EIS shares.
Not every equity crowdfunding campaign qualifies. Check the platform’s documentation before assuming relief is available.
Running Your Campaign Through a Limited Company
If a company rather than you personally runs the campaign, rewards income falls under Corporation Tax. The small profits rate is 19% on profits up to £50,000, and the main rate is 25% above £250,000, with marginal relief in between.15GOV.UK. Corporation Tax Rates and Allowances
A company issuing shares through equity crowdfunding is not taxed on the proceeds because the money is capital, not income. Companies House filings and the share register still need to be kept current. Most equity platforms use a nominee structure to hold shares on behalf of individual investors, which simplifies the paperwork.
Corporation Tax is only the first layer. When directors or shareholders take money out as salary or dividends, personal Income Tax applies on top.
Reporting to HMRC and Keeping Records
Register for Self Assessment by 5 October following the end of the tax year you received taxable crowdfunding income.16GOV.UK. Self Assessment Tax Returns – Deadlines A campaign that closed in the 2025/26 tax year (ending 5 April 2026) means registering by 5 October 2026 and filing your online return by 31 January 2027.
Keep detailed records: pledge dates and amounts, what backers received, platform fees, manufacturing and shipping costs, and every other deductible expense. Self-employed records must be kept for at least five years after the 31 January filing deadline, so records tied to a 2025/26 return should be held until at least 31 January 2032.
If your total trading income sits within the £1,000 trading allowance and you have no other reason to file, you do not need to register or report it.5GOV.UK. Tax-Free Allowances on Property and Trading Income Gifts received through crowdfunding don’t need reporting either, though keeping evidence of the gift nature of the payments is sensible if HMRC ever asks.
Penalties for Missing the Deadline
Late filing triggers automatic penalties even when no tax is due:17GOV.UK. Self Assessment Tax Returns – Penalties
- Immediately late: £100 fixed penalty.
- Three months late: £10 per day for up to 90 days (maximum £900).
- Six months late: a further 5% of the tax owed or £300, whichever is greater.
- Twelve months late: another 5% of the tax owed or £300, whichever is greater.
A return filed a year late with £2,000 of tax owed racks up at least £1,200 in penalties before the tax itself. A separate points-based system is phasing in under Making Tax Digital for Income Tax from 2026/27 for qualifying taxpayers, with a £200 charge once four points accumulate.18GOV.UK. Penalties for Making Tax Digital for Income Tax The traditional penalties above still apply to most Self Assessment filers through the 2025/26 return.