UK prize draw operators raise concerns over VAT uncertainty
There are concerns that HMRC’s imposition of VAT on prize draw entries could lead to retrospective tax claims.
UK.- Concerns have been raised over a change in HM Revenue and Customs’ (HMRC) stance on how VAT applies to prize draws in the UK. The agency has taken the view that VAT applies to paid entries for draws run by businesses covered by the Department for Digital, Culture, Media & Sport’s new voluntary code for prize draw operators.
The sector, which still remains outside of the Gambling Commission’s regulatory remit, has long operated under the understanding that VAT did not apply to paid entries when free-entry routes were also available. The recent guidance seems to change that, imposing the standard VAT rate of 20 per cent.
Exchequer secretary Dan Tomlinson told Parliament in February that draws with both paid and free entry routes are “not eligible for VAT exemption, and paid entries will be subject to VAT at the standard rate of 20 per cent.”
Tax advisers argue that it’s not clear whether current legislation does support this interpretation, leaving operators in a state of uncertainty. Some operators fear that the change could lead to reduced profit margins and possibly even retrospective tax claims.
DrawHouse, which provides a business-to-business prize draw platform, suggests that companies that have been operating with a 50 per cent gross margin could see margins fall by 25 to as much as 35 per cent.
Chief commercial officer Jamie Pinner warned that “VAT and taxation are not a discussion for the future. They are a live, immediate commercial concern being prioritised by operators across the market.”
“Adapting to a lower-margin future is one thing. Finding cash to settle an unexpected historic liability is a different ask entirely,” he said, but added: “Structural change creates winners as well as losers. A more disciplined, transparent and professional market benefits serious operators and trusted infrastructure providers alike. Taxation may reshape the prize draw market, but it does not remove the opportunity. The businesses that build for the market as it will be, rather than the market as it was, may emerge better capitalised and positioned than before.”
Operators in other verticals may have little sympathy. Even with the VAT hit, prize draw operators would still have higher margins than sportsbooks or casinos. The lottery sector continues to call for prize draws to be regulated, arguing that the sector represents unfair competition, while over 50 draw operators have created their first dedicated trade body, the Prize Competition Council (PCC) to fight their corner.
The PCC says it aims to encourage voluntary self-regulation, strengthen player protections and foster dialogue with government and regulators. The introduction of more standards is expected to lead to consolidation in the market. Earlier this month, the German lottery brokerage Zeal Network SE announced an acquisition of a 96.5 per cent stake in SevenCanyon Limited, whose portfolio includes sites such as 7days Performance, Redline Competitions and UK Carp Competitions.
