Should there be VAT on prize draws

A question was raised in the House of Commons in relation to VAT on prize draws offering both paid and free entry routes – as set out by the voluntary Code of Conduct published by the Department for Culture, Media and Sport – as to whether or not they are subject to VAT under the Value Added Tax Act 1994.

On 17 February 2026 the following answer was provided “HMRC confirm that prize draws offering 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%.” See the written question in Parliament

VAT exemption

In simple terms there would be no VAT on prize draws if they are exempt from VAT under the relevant part of the legislation being VATA 1994 Schedule 9.

To be exempt under these provisions the supplies would need to constitute one of the following:

The placing of bets; or
The playing of dutiable machine games; or
The right to take part in a lottery; or
A “game of chance”.

From the above it can be seen that VAT on prize draws would be due unless exemption applies based on the “draws” or “competitions” each being a “game of chance”.

HMRC’s view

HMRC’s view seems to be that what is supplied in such a “draw” or “competition” as being liable to VAT at the standard rate and not a “game of chance”.

Input tax

If VAT on prize draws is chargeable on entries, input VAT recovery would follow on expenditure such as on prizes of goods.

VAT registration

If there is VAT on prize draws then businesses involved in this sector should be considering:
• potential historic exposure to VAT and possibly VAT penalties;
• possibly registering for VAT from an historic date; and
• the commercial implications.

VAT registration is likely to significantly affect margins, pricing structures, and historic accounting treatment.

Spot the ball

Is a “draw” or “competition” a “game” and if so is it a “game of chance”? The “of chance” element seems clear in relation to a “draw” so it would seem that the focus might be on the word “game”. This point formed part of the argument with HMRC in respect of “spot the ball” competitions which took many years to resolve, ultimately in favour of the taxpayer at The Court of Appeal.

Disputing HMRC’s position with regard to VAT on prize draws is likely to be expensive. In “Spot the ball” some 10 appellants had joined the case against HMRC.

VAT on prize draws possible litigation

We may yet be instructed in relation to an appeal relating to VAT on prize draws where we would instruct Counsel.

Contact

Speak to one of the VAT specialists at Solve VAT about VAT on prize draws or any other VAT issue on 0161 883 2120.

HMRC

HMRC’s VAT Notice 701/29 on betting and gaming.

VAT on prize draws – are they liable to VAT?