Reward-based crowdfunding
People pay in advance for a reward, often the product you plan to make, through an online platform. You give up no shares and repay nothing, but you must deliver what you promised.
- No security
How it works
You set a funding target and list rewards at different pledge levels on a crowdfunding platform. Supporters pay in return for a reward, such as an early version of the product, a discount or an experience.
Reward-based (or pre-payment) crowdfunding is not regulated by the FCA.
For VAT, HMRC treats a reward with real value (for example clothing, tickets or a DVD) as a supply. The VAT treatment then follows the goods or services you provide. A contribution where the supporter gets nothing back, or only something symbolic, is treated as a donation and is not liable to VAT.
Upsides and downsides
Upsides
- No shares given up and nothing to repay
- Tests demand for a product before you make it
- Builds a community of early customers
- Publicity for your launch
Downsides
- You must deliver the rewards, which can cost more than expected
- Campaigns take a lot of time and marketing
- Not regulated by the FCA, so there is no regulatory safety net for you or your supporters
Risks
- Missing your target and raising nothing (on all-or-nothing platforms)
- Failing to deliver rewards, damaging your reputation
- Underestimating costs, including VAT, so the campaign loses money
What it costs
- How it is priced
- The cost of making and delivering the rewards, plus platform and payment fees
- Costs that are easy to miss
- Platform and payment processing fees. Check them before you launch
- The cost of making, packing and posting rewards
- VAT on rewards that count as a supply
- Marketing the campaign
Depends on your campaign target and how many supporters you attract.
Does it fit?
Could fit when
- You have a product or project people will pre-order or support
- You have an audience you can reach online
Unlikely to fit when
- You cannot afford to deliver rewards if costs rise
- You need large sums for something people cannot pre-order
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company, Community interest company, Co-operative or community benefit society, Charity
- Open to businesses with no sales yet
- The platform must accept your project
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all crowdfunding and community finance
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0 of 3 ticked
- Reward costs worked out
- Campaign plan
- An audience to launch to
Regulation and protections
Reward-based crowdfunding is not regulated by the FCA. Your obligations come from the platform's terms and the promises you make to supporters.
Types of provider: Reward crowdfunding platforms.
Also consider
Sources
- FCA: Crowdfunding · checked 7 October 2026
- HMRC VAT Finance Manual VATFIN5550: crowdfunding · checked 7 October 2026