Elite Encounters: The Elite Dangerous RPG

[Selezen]

I just had a weird thought... Do Kickstarter project managers (i.e. the person the funds get paid to) have to pay income tax on the payment?

So, for example, if my KS makes £6000 do I need to pay £120 to the government?

[Cody]

I have wondered about this. You're probably okay at £6,000 - but what about £1.5 million?

[cim]

I just had a weird thought... Do Kickstarter project managers (i.e. the person the funds get paid to) have to pay income tax on the payment?

So, for example, if my KS makes £6000 do I need to pay £120 to the government?

You will need to pay some sort of tax on it. I believe the recommendation is to pay the money in to a company as income, and then pay your expenditures out of that company. You then would need only to pay tax on the company's profits, at the lower corporation tax rates, rather than on the whole of the sum at your personal income tax rates. (And, with a corporation, there are some deferral tricks you can do so you aren't hammered for taxes if your income comes in just before the tax year ends, and your expenditures come after that: you can't do that with personal income)

If you don't have a handy company lying around already then it doesn't take that long to set up a "sole trader" company (and a business bank account for it), though it will make your end-of-year tax returns a little more complex.

Back in the old days your local council probably had someone who could give free advice on all this; if not you may need to pay an accountant or lawyer.

(Also, do you mean £1200? 2% income tax seems pretty low!)

[Selezen]

Apologies, yes, I meant £1200...damn keys...

I've looked on Forbes.com, and apparently I only have to pay income tax if my earnings in the year, including the pledges, goes over £77,000.

Equally, in the UK, if your crowdfunding revenue plus any other sales income exceeds £77,000, you’ll need to register for and pay VAT. That means charging VAT on everything you sell, something you can’t retroactively impose on your rewards, and claiming back the VAT on the supplies you buy.

So things should be OK. All I need to do is keep track of income and expenditure. Which I was going to do anyway, so that's fine.

One thing I may do off my own back (and with my own money) is register Daftworks as a company name. Then I have a trading entity to back up the claims and make sure that the pledges are registered to that company name rather than to myself.


Incidentally, new update up...

http://www.kickstarter.com/projects/sel ... erse/posts

Enjoy!

[Smivs]

I've looked on Forbes.com, and apparently I only have to pay income tax if my earnings in the year, including the pledges, goes over £77,000.

Equally, in the UK, if your crowdfunding revenue plus any other sales income exceeds £77,000, you’ll need to register for and pay VAT. That means charging VAT on everything you sell, something you can’t retroactively impose on your rewards, and claiming back the VAT on the supplies you buy.

Er, Selezen, the Forbes quote is regarding VAT, not income tax.
Disclaimer:- I am not an accountant!
Income tax is levied on all profit above your personal allowance, profit being your wages/salary if you are an employee, and profit after allowances and expenses if you are self employed.
You probably will be liable to income tax on some of the kickstarter funds, but how you calculate it and pay it again may depend on your employment status.

Edited to add:- You might find this helpful, and there is loads more advice on the web of course. HMRC would seem a good place to start.

[cim]

I've looked on Forbes.com, and apparently I only have to pay income tax if my earnings in the year, including the pledges, goes over £77,000.

Equally, in the UK, if your crowdfunding revenue plus any other sales income exceeds £77,000, you’ll need to register for and pay VAT. That means charging VAT on everything you sell, something you can’t retroactively impose on your rewards, and claiming back the VAT on the supplies you buy.

Income tax != VAT. But yes, you won't need to worry about VAT for a little while.

https://www.gov.uk/set-up-sole-trader and http://www.startups.co.uk/registering-a ... ancer.html seem pretty good on the trading entity side of things. (Also: no registration fee)

[Selezen]

Dagnabbit! Yeah, got my taxes mixed up. Well, at least there won't be 20% coming off in income tax!

Further research is necessary. I take it this will mean I need to listen to those annoying tax return ads this year though...

[Selezen]

I asked Mrs Selezen about this yesterday (since she has done the tax returns for her place of work for the last five years) and she says there's nothing to worry about, income tax won't have to be paid.

The reason is that it is a donation rather than a purchase of a concrete item. Since no definite product or item has been received by the pledger it can also be counted as a service rather than a purchase. Only if I begin to sell actual items in exchange for cash (i.e. after the Kickstarter) where receipts are involved do I start to accrue taxable income.

The science of it is a mystery to me, but she is adamant on it, and this is her ballpark so I bow to her expert advice.

[cim]

I asked Mrs Selezen about this yesterday (since she has done the tax returns for her place of work for the last five years) and she says there's nothing to worry about, income tax won't have to be paid.

The reason is that it is a donation rather than a purchase of a concrete item. Since no definite product or item has been received by the pledger it can also be counted as a service rather than a purchase.

Hmm, I can't see HMRC buying that argument. Backers are giving you money. In return you are obliged by Kickstarter's T&C's to give them their selected reward. If that's not taxable like a purchase I'd be very surprised - I very much doubt Frontier has just received a windfall of £1.5 million tax-free, for instance, though I expect they are working very hard on spending it so it doesn't end up as taxable profit.

(At least, that's how it works out for the US where the tax precedents are more well-established. There may be a loophole in UK tax law that lets you get away with it, I guess...)

[Wolfwood]

HMRC

Sorry to derail this, but HMRC? Her Majesty's Ruthless Collectors?

Also, I'm pretty sure I've seen Kickstarter described as a donation service. The products promised are not binding contracts or purchases as such - they are incentives for the donations.

[cim]

HMRC

Sorry to derail this, but HMRC? Her Majesty's Ruthless Collectors?

Revenue and Customs, but I like your idea better...

[Diziet Sma]

HMRC

Sorry to derail this, but HMRC? Her Majesty's Ruthless Collectors?

Revenue and Customs, but I like your idea better...

There was once an Aussie who addressed his Income Tax Return to the Dept of Rape and Pillage.. apparently the Post Office had no difficulty figuring out who to send it to..

[Selezen]

(At least, that's how it works out for the US where the tax precedents are more well-established. There may be a loophole in UK tax law that lets you get away with it, I guess...)

I think that's the point - the donation model used by Kickstarter is a different kettle of fish in the UK, I think.

Your comment about profits is where it all hangs. Basically I'll be giving Frontier £4500 of that £5,450 (at the moment) donation, as well as giving about £750 to Kickstarter to cover their fees. That will leave me with £200 ish depending on what the final total is (unless the last two days result in an influx of major dontations).

I don't even think that shows up on a tax man's radar, since income tax is calculated on earnings in the year (or profits) and has to be above a certain threshold as well as being a regular income source rather than just a one-off payment. Frontier's £1.5m I think is income taxable because it's over the threshold for that tax bracket (unless their status as a company has some additional rules) and it might be windfall taxable, again because it's over the threshold for that tax.

[Mad Dan Eccles]

d has to be above a certain threshold as well as being a regular income source rather than just a one-off payment.

er, in case anybody's thinking this is a general rule: if I have a salaried job (which I do) and do a one-off gig for which I get paid (which I have) I have to pay tax on that one-off payment (which I did).

[cim]

(Obvious disclaimer: I'm still not an accountant; this is just from my memory of having briefly been a sole trader myself)

Also, I'm pretty sure I've seen Kickstarter described as a donation service. The products promised are not binding contracts or purchases as such - they are incentives for the donations.

It strikes me that there's a really obvious tax dodge if that's actually true:

Carpenter is a (sole trader) seller of hand-made wooden furniture - chairs, tables, etc. People pay Carpenter money to produce this furniture, and at the end of it they have some furniture. Carpenter pays income tax on their profits.

Their competitor Dodger starts a Kickstarter to produce their first music single. The rewards are as follows:
£1: you get a DRM-free MP3 copy of the single.
£60: as above, but you also get a chair to sit on while you listen to the single.
£320: as above, but you also get a table to put your MP3 player on while you sit on your chair.
+£60: add an extra chair to your rewards, if you'd like to listen with friends or family.
According to this logic, Dodger would not pay income tax on their profits, because someone has donated them £320, and they have donated that person a table, chair, and MP3 file. Not a business arrangement, oh no. I'm a legitimate struggling artist, your honour.

Is a creator legally obligated to fulfill the promises of their project?

Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. [...]

If you have to give the "donation" back if you don't give the backer the pre-agreed "donation reward", that really looks like a sale to me.

That will leave me with £200 ish depending on what the final total is (unless the last two days result in an influx of major dontations).

And easy enough to avoid even that by spending that £200 on the various supplies needed for the rest of the project before the end of your company's accounting year. [1]

Any profits on Frontier's £1.5 million will go under the much lower corporation tax rate as they're a company rather than David Braben's sole-trader entity, and probably won't hit any windfall taxes for the same reason ... and there are other things like deferrals which big companies can do to shift profits and losses around between years to avoid "bumpy" income giving them an unfair tax bill. They probably won't pay a lot of it in tax right now - that'll come when Elite: Dangerous is released and earning them tens of millions a year, and paying a million in tax on that becomes a minor inconvenience...

[1] Hint: you get to pick when your company's accounting year starts, so don't go with the standard financial year - base it on your company's date of founding, and just make sure that's a couple of days before the money comes in from the Kickstarter - 1 March, say - and you get a year to spend it all before it becomes "profit" ... and that'll be easy enough with all the dice, books, printouts, and so on you've promised people.