Should there be VAT on prize draws

In early 2026 a question was raised in the House of Commons in relation to VAT on prize draws that offer 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.

Across this diverse sector, prize draws are run for three different purposes.

■ Fully for profit: Commercial broadcasters and newspapers run prize competitions, often requiring entrants to respond to a question or enter via a paid text or phone-call. These will often include routes that allow users to enter for free, and/or can include requiring the exercise of a skill.

■ Charitable causes: Prize draws are also used by charities themselves to
fundraise for their causes.

The simple rules in the Gambling Act 2005 mean that this is a quick and effective way for charities to quickly raise funds for their organisations.

■ Combination of the two: Such draws provide the proposition of raising significant sums of money for good causes while also operating as a for profit business. This approach has made it possible for Omaze to raise over £9m for charities and generate over £10 million in tax revenue in the UK since we began
operating in the country.

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”. The thinking of HMRC appears to be that such prize draws lack a sufficient degree of participation to constitute a game.

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.

“Nudge” letters

HMRC have issued letters to a number of prize draw operators outlining HMRC’s view that prize draw entry fees are subject to VAT at the standard rate. If this is correct HMRC take the view that any prize draw operator not yet registered for VAT should consider whether or not it has a historic VAT liability.

Lottery

Could a prize draw be considered a lottery and therefore any income would be exempt from VAT? This may yet need to be decided by the Tax Tribunal.

VAT on prize draws litigation

VAT appeals relating to VAT on prize draws are due to be heard by the Tax Tribunal. Any prize draw operator receiving a VAT assessment or VAT registration may appeal that the decision to the Tax Tribunal with the possibility of having its case stayed pending the outcome of ongoing litigation.

The way forward

The outcome of a case in relation to Omaze is expected in early 2027.

Any prize draw operators that have not been accounting for VAT on entry fees should be considering its position and possibly start to engage with HMRC. Early engagement with HMRC may ultimately be helpful when seeking mitigation from a VAT penalty should HMRC’s position that VAT is due on entry fees be correct.

Time to pay

If any VAT is due the possibility of obtaining a time to pay arrangement with HMRC may be helpful with the cash flow position.

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?