The Walkthrough: What gaming studios need to know about crowdfunding platforms and tax

Our Walkthrough series aims to cover a wide range of topics relevant to businesses of all sizes within the gaming industry

A gaming crowdfunding platform allows creators to raise money from supporters to fund projects. For video game developers, it is often used by indie studios to test demand, build an early audience, and secure the funds needed to develop a concept.

Sometimes campaigns raise far more than expected. In these situations, a sudden influx of cash creates questions around tax and how to manage rewards. Some studios do not anticipate these issues, which can create complications if not addressed early.

In this article, we refer to the crowdfunding platform Kickstarter. There are, of course, many other platforms available, but the tax considerations discussed here will generally apply regardless of which platform is used.

How does a gaming crowdfunding campaign typically work?

Crowdfunding campaigns, on platforms such as Kickstarter, often operate on a tiered reward system linked to development milestones. Supporters, or backers, receive different levels of rewards depending on their contribution:

Low-tier: digital copy of the game.
Mid-tier: early access, exclusive in-game skins, or soundtracks.
High-tier: collector’s editions, art books, or merchandise.

Some campaigns show what extra features or content can be delivered if higher funding targets are met. This gives backers a clear view of what the studio can produce at different funding levels.

While these rewards are exciting for backers, they are not simply marketing perks. From a tax perspective, anything of value given in return moves a pledge from being a simple contribution to being consideration for goods or services, which affects both Corporation Tax and VAT.

What are the Corporation Tax implications of a successful campaign?

How should income be recognised?

When backers receive goods in return, the funds they provide are taxable income for the developer, not a donation. Revenue should be recognised at the fair value of the goods or services provided.

Large upfront funding, such as a successful Kickstarter campaign, . In practice, this usually happens only in more extreme cases, because most early development costs will be deductible and help offset the initial income.

Even so, it is still possible for a studio to face earlier tax payments if income is recognised upfront and costs fall later in the year. Planning for this helps avoid avoidable pressure on cash flow.

Why should each game be treated as a separate trade?

For Video Games Tax Relief (VGTR), it is crucial to treat each game as a separate trade from the outset. Doing so avoids complications when allocating costs between games and allows accurate and efficient VGTR claims.

What is the interaction with R&D Relief?

Studios cannot claim both R&D relief and VGTR on the same development costs, so it is important to understand early which scheme is likely to apply and plan budgets around that. It also helps to treat each game as a separate trade from the start, so costs are tracked clearly and future claims can be prepared without difficulty.

When is VAT relevant for crowdfunding platform campaigns?

VAT is an area that often surprises developers. The key question is whether backers are receiving something in return for their pledge.

If the backer gets nothing in return, the contribution is treated as a true donation and is outside the scope of VAT. This is very different from situations where backers receive goods or services, which brings the transaction within the VAT system.
If the backer receives rewards, such as exclusive skins, early access, enhanced in-game features, collector packs, or merchandise, the transaction becomes VATable.

Effectively, developers must identify early whether pledges represent consideration for a supply of goods or services. Misclassification can result in VAT exposure later, including interest or penalties.

The VAT treatment also depends on timing. For example, if a backer pays in advance for rewards delivered much later, developers need to consider when to account for VAT and ensure their records align with actual delivery schedules.

Practical tips for developers running a Kickstarter campaign

Running a successful crowdfunding campaign on a gaming platform is more than just creating a game. Developers need to combine creative planning with practical financial management:

Document all costs from day one.
Plan for the timing of income recognition. Large pledges in year one can trigger early Corporation Tax liabilities.
Clarify VAT treatment early. Determine which pledges represent consideration for goods or services versus true donation.
Understand R&D or VGTR eligibility. Knowing which scheme applies helps with budgeting, claims and forecasting.

Closing thoughts

Gaming crowdfunding platforms are a valuable tool for indie game developers. When campaigns are planned properly, they help build a community, support team development, and provide early feedback. Understanding Corporation Tax, VAT, and available tax reliefs ensures developers can focus on making games while staying compliant.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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