CIC Association

Serving Community Enterprise

We would like to offer royalties to large donators in our upcoming crowdfunding campaign.

What is the protocol for royalties are they expenses as they are paid before tax?

Are they also covered by the 35% dividend cap?

Help!!!!! Campaign is getting really close now and I cannot find any solid information on this!

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Replies to This Discussion

Hi, not sure that the payments would meet the definition of royalties. To me paying people who have donated to you means they haven't truly donated. What they have done is invested and are entitled to some form of financial return via interest or dividends (if you are limited by share and they are getting shares in the CIC).

Yes this i understand royalties are a form of equity, however, I have found out that royalties are paid before tax and not after. This seems to me to make it a form of interest or an expense - NOT a dividend. I can only find regulations covering dividends. What I need to know is if we need 35 lots of £1000 can we offer 1% of the companies profits before tax to each of them?

Hi Imogen

Can you describe the proposal in a bit more detail please, the term royalty normally refers to a payment for use of a patent, use of other asset such as song/book.That is why it is regarded as an expense.

The investor isnt contributing an asset that a royalty can be applied to, simply cash. You can take the money as a donation.......in this instance the donor could not expect any return at all.

As you describe it could be arranged as a loan, but it would be better to offer a post tax return rather than a pre tax I suggest.

You should have a look at The Performance Loan (page 9) as it could work for you: https://www.gov.uk/government/uploads/system/uploads/attachment_dat...

Have you considered an equity investment? For both loan and equity there is a good chance you could qualify for 30% tax relief to the investor. That is cash back straight away via the tax system.

You should definitely come to this: https://www.google.com/url?hl=en-GB&q=http://cicassociationeven...

Sorry John, would love to, but Birmingham is too far for someone with my disability.

Equity may be the way to go.  We are hoping to buy land so that we can set up a park that provides living history including a winter training arena for reenactors, craft workshops for small businesses, countryside crafts and skills, wild and permaculture areas and a low entry fee for anyone whose main residential address is in our county, also opportunities for people to live and work in the country side.  I believe that agriculture - although pertinent to our project - is not the primary function we may qualify.

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