Crowdfunding in action: taxing times
IFA Magazine continues to following young British designer Charli Cohen as she looks to secure backers for her high performance sportswear crowdfunding venture. In this week’s update we consider funding and tax issues related to Cohen’s CC Effect campaign and crowdfunding industry in general.
Cohen’s crowdfund, which has won considerable praise from experts, was launched on the Kickstarter platform on 29 October. The target is to secure £30,000 in 30 days to November 28, with funds used to take her “new, luxe, fashion-forward” technical sportswear collection to market via a pop-up shop in Central London.
As of mid-day today, with 13 days of the campaign left, she has secured 87 backers pledging a total of £16,427.
Cohen is naturally very reassured by progress so far: “What an incredible response so far, the campaign has been hitting our required £1000 a day target.” Indeed the CCEffect team believe the venture might just be biggest crowdfunding campaign ever undertaken by a fashion designer in the UK.
Aged 23, Cohen is keen to share her thoughts on the all-important issues for crowdfund ventures: securing backing and the inevitable, dreaded tax implications.
She firstly notes that platforms like Kickstarter are, in general, set up to attract individuals making a personal investment. For ventures with big targets – such the CC Effect’s £30,000 goal – another valid option is to approach SMEs for backing: “Rather than offering the conventional ‘rewards’, I see this route could work more as a corporate sponsorship – a relatively small investment on the part of firms could make for a mutually beneficial business partnership.
“The partnership could include a number of things: co-marketing and co-branding at The CC Effect pop-up store itself, the PR opportunity of working with a young British designer, or offering something internally such as an on-going fitness and nutrition consultancy with the company’s staff.”
Currently Kickstarter does not offer tax breaks for individuals. However, Cohen notes, if a business were to have a separate sponsorship contract with Charli Cohen, they would benefit – the Kickstarter pledge would in such cases be considered a tax-deductible marketing expense.
Commenting more broadly on the current tax regime for the industry, Julia Groves, chair of UKCrowfunding Association, says: ‘While higher risk crowdfunding attracts incentives via the Enterprise Investment Scheme and Seed Enterprise Investment Scheme – they are the envy of the crowdfunding world globally – lower risk loans and debt based crowdfunding currently do not compete on a level playing field with equivalent investments in terms of tax.
She adds: “Extending ISA status, for instance, to a wider range of assets and instruments would revolutionise the choice for smaller investors seeking uncorrelated, simple investments that directly benefit UK plc and the real economy”
Groves is also managing director of Trillion Fund, a portal to investments in renewable energy projects, whether they be crowdfunds, bonds or shares in a local co-operative or PLC.
Wearing her Trillion hat, Groves says the platform is urging government to include renewable energy bonds on the ISA list. She says: “It’s just a question of fiscal policy supporting energy policy, the left hand talking to the right as it were. Consumers that invest their money for both financial and environmental returns should benefit from the same tax breaks as those investing in the FTSE100.”