Business crowdfunding means raising money from a large number of people through an online platform, rather than from one bank or one investor. The word covers four different products, and the one you pick decides what you owe afterwards. Equity crowdfunding sells shares in your company. Debt crowdfunding is a loan you repay with interest. Rewards crowdfunding pre-sells a product, so what you owe is delivery rather than money. Donation crowdfunding rarely applies to a company at all. Working out which of the four you're looking at is most of the decision.

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The four kinds of crowdfunding, and what each one commits you to

The four differ in what the crowd gets back, and that is what decides what you give up: shares, interest, a product, or nothing at all. Two of the four are regulated by the Financial Conduct Authority and two are not, and only one of them is money you have to repay.

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Equity crowdfunding: you sell shares in your company

In equity crowdfunding you issue new shares and the crowd buys them. The FCA's description is investing in a business by buying shares, where the more someone puts in, the bigger their stake. Nothing is repaid and no interest accrues, which is why it looks cheaper than a loan.

What it costs is permanent: a share of every future profit, a share of whatever the company is eventually worth, and a group of shareholders whose questions you answer from then on. A share issue also needs a valuation you can defend in public. Crowdcube and Republic Europe, formerly Seedrs, are the two best-known UK platforms. For the mechanics, start with equity financing; if you'd rather deal with one investor than several hundred, what a fund looks for is a different conversation.

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Debt crowdfunding, or peer-to-peer: you borrow and repay

Debt crowdfunding and peer-to-peer lending are two names for the same thing, which is worth knowing before you compare platforms that use different words for it. The FCA calls it loan-based, or peer-to-peer, crowdfunding. A platform connects people who want to borrow with people willing to lend, the lender gets repayments over time with interest, and the platform takes a fee for arranging and managing it. HMRC calls the same model 'many to many' lending.

So this one is a loan. You repay it, with interest, whether or not the thing you borrowed for works, and you keep every share. The market has narrowed, so start with peer-to-peer lending for a limited company for the platforms still open to companies.

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Rewards crowdfunding: you pre-sell a product

Rewards crowdfunding is pre-selling. Someone pays now and gets the product later. The FCA is careful with the wording: they are 'a contributor rather than an investor', 'looking for a specific benefit in a product, rather than financial return', and 'the reward isn't guaranteed'. Kickstarter and Indiegogo are the best-known platforms for it.

No shares change hands and there's nothing to repay, so on paper this is the cheapest of the four. What you owe instead is delivery, at a price you fixed months earlier, to everyone who paid. And the money isn't all yours, because HMRC treats a reward with intrinsic value as a supply like any other sale.

It is also the only one of the four that tells you something before you spend anything. Crowdfunding lets you gauge interest in a venture before committing the resources to making it happen, and if a few hundred strangers won't pre-order your product, that's better learnt in month one than month nine.

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Donation crowdfunding: rarely a fit for a company

Donation crowdfunding funds a cause rather than a return. The contributor gives and expects nothing back, which is why HMRC treats the money as a donation and outside VAT, even if the giver gets something symbolic like a mention in a programme. It suits charities, community projects, and local causes. A limited company raising money to trade is none of those, so this one is here for completeness.

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How a campaign runs, and what the platform takes

You pitch the project on a platform, the platform puts it in front of its users, and they pledge. What decides whether the exercise was worth it is what happens if you fall short.

Most platforms run all or nothing. The FCA puts it plainly: if the total raised falls short of the pre-set target, the funds go back to contributors in full, with no fees or deductions. A target set too high therefore costs you the entire campaign, not the difference. Some platforms work the other way and release whatever was pledged, which sounds kinder until you're committed to delivering a product on two-thirds of the money.

The platform charges you, not your backers. The FCA describes the fee as usually a percentage of the funds raised, payable if the crowdfund hits its target. HMRC's list of what platforms actually charge is longer: commission on funds raised, yearly or monthly subscription fees, flat fees, arrangement fees, administration fees, and legal costs. There's no reliable published average, and anyone quoting one is quoting a platform's own marketing. Read the fee page of the platform you're considering, and add payment processing on top of whatever it says.

For a loan-based or investment-based platform, the FCA tells backers to confirm on the Financial Services Register that the firms involved are authorised, and what for. Worth doing from your side of the deal too.

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What a £50,000 rewards raise actually leaves you

Pledges are not turnover, and that's where rewards campaigns catch people out. If your company is VAT-registered and the reward is standard-rated, the money you collect already has VAT inside it.

Take £50,000 of pledges, an illustrative round number, for a standard-rated product sold by a VAT-registered company. The standard rate of VAT is 20%, so one sixth of what you collected belongs to HMRC:

Then take off the platform's fee, payment processing, and the cost of making and shipping the reward. A campaign priced as though £50,000 of pledges were £50,000 of funding loses money on every unit it ships.

Two things change the sum. If you aren't VAT-registered, the VAT line is nil for now. But you must register once your total taxable turnover for the last 12 months goes over £90,000, or when you expect to pass it in the next 30 days. Pledges for a reward count towards that figure. And if the reward is zero-rated, as most food and children's clothes are, the VAT follows the reward rather than the pledge.

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Tax and VAT on what your company raises

It depends which of the four you ran, and the differences are large.

Rewards. Where a contributor gets goods or services with an intrinsic value in exchange for their support, HMRC says there's a supply for VAT purposes. The VAT then follows the liability of those goods or services. That's the treatment of a normal sale, because that's what it is: the money is trading income and the reward is stock you owe.

Equity. Where your company issues shares to raise finance, HMRC's manual says the issue isn't a supply for VAT purposes. The cash is share capital rather than a trading receipt, so it isn't taxed as profit.

Loan-based. The interest your lenders receive is consideration for an exempt supply of credit, so no VAT attaches to it. For your company it's borrowing: the money isn't income, and the interest is a cost.

Donations. Outside VAT, as long as the giver genuinely gets nothing back.

SEIS and EIS. If you're raising equity, the reliefs your investors can claim are often what makes the round happen, and the conditions sit on your company rather than on them. Under the Seed Enterprise Investment Scheme a company can raise a maximum of £250,000, and to qualify it has to:

• Be carrying out a new qualifying trade.
• Be established in the UK.
• Not be trading on a recognised stock exchange when the shares are issued.
• Hold gross assets of no more than £350,000 at that point.
• Have fewer than 25 full-time equivalent employees.

The money has to be spent within 3 years, and your investors lose their relief if the rules are broken within 3 years of their investment. These are the reliefs angel and private investors look for too.

Advance assurance is optional, whatever a platform's onboarding implies. You can ask HMRC whether an investment would meet a scheme's conditions and show the answer to potential investors. It won't tell you whether a given investor qualifies, and HMRC will usually want their details first.

None of this replaces your accountant. The treatment of a rewards raise turns on what the reward is and when you deliver it, so put the plan in front of them before you launch.

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What can go wrong, and what regulation doesn't cover

Four things go wrong often enough to plan for. You compete for attention against every other live campaign, and most of them are also telling their founder story. On an all-or-nothing platform you can do all the work and finish with nothing. Miscalculating the equity or the rewards gives away more of the business, or more of the margin, than you meant to. And publishing the idea in detail, sometimes while it's still a prototype and without a patent, shows it to anyone who fancies building it faster.

Then there's what regulation does and doesn't do, which gets assumed more often than checked. The FCA's guidance, first published on 27 May 2026, regulates loan-based and investment-based crowdfunding. Donation-based and rewards-based crowdfunding are not regulated activities, although the FCA may still regulate the payment services. In its own words, your payment 'may be protected by regulation, but if the crowdfunding project fails or doesn't deliver, you're unlikely to be protected'. It calls the two regulated kinds high-risk investments, with no access to the Financial Services Compensation Scheme.

That's all written for the person putting money in. From your side there's a further gap: a loan to a limited company isn't a regulated credit agreement. Entering into one as a lender is a regulated activity. But article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 reaches only an individual or a 'relevant recipient of credit'. That means a partnership of two or three people, or an unincorporated body, and a company is neither. So the consumer-credit protections that come with a regulated agreement don't attach to your company's borrowing, from a crowdfunding platform or from anyone else.

What you do keep is the ombudsman. If your turnover is under £6.5 million you can take a complaint about an FCA-regulated firm to the Financial Ombudsman Service, free. Give the firm a chance to put things right first, and allow 6 months from its final response.

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Crowdfunding or a business loan

A campaign and a loan solve different problems, and plenty of companies pick the campaign because it sounds free:

The honest version of the choice is this. If what you need is proof that there's a market, a rewards campaign buys you that and a loan doesn't. If you need stock in three weeks because your busiest quarter starts then, a campaign is the wrong tool. It runs for weeks, it can hand the money back, and you'll have spent those three weeks writing a pitch instead of buying stock.

Grants are worth a look before either, because you don't repay them and you don't dilute. Our guide to government grants covers what's open to a limited company, and other ways a company raises money sets these four against the rest.

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Where an iwoca Flexi-Loan fits

Some of the companies that read a crowdfunding page don't need a raise at all. They need to cover a timing gap and get on with it. An iwoca Flexi-Loan can fund stock ahead of your busiest season – MuscleSquad uses one to buy stock in line with its sales cycle. It is a business loan with flexible repayment options: you borrow £1,000 to £1 million and you keep every share. A decision is typically made within 24 hours, though it might be longer depending on the complexity of the request. If your company is new, our start-up business loans go up to £10,000, which won't fund a production run but will cover a first order. Every new Flexi-Loan needs a personal guarantee from at least one director, and we lend to UK limited companies.

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Crowdfunding FAQs

Is crowdfunding short-term or long-term finance?

It depends which kind. Equity crowdfunding is permanent: you never repay it, and the shares stay sold. Debt crowdfunding is a fixed-term loan, so it's short- or medium-term in the ordinary way. Rewards crowdfunding is neither, because it's revenue collected early, and what you owe is a product rather than money.

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Can a new limited company use crowdfunding?

Yes. The FCA notes that many companies seeking crowdfunding 'are in their infancy', and neither equity nor rewards crowdfunding needs a trading history, which is the usual obstacle elsewhere. The Seed Enterprise Investment Scheme is built for this stage, with its own conditions on your company's size and trade.