HMRC has begun contacting UK prize draw operators over VAT compliance on paid entries, according to B2B platform DrawHouse. The enquiries cover both current status and historical periods.
The move follows a parliamentary question earlier this year in which the Treasury confirmed HMRC's position: paid entries into draws operating under the voluntary DCMS code are subject to VAT at the standard rate. Tax advisers dispute the interpretation and have suggested alternatives, such as applying VAT to prize payouts rather than ticket sales. An HMRC spokesperson said the law has not changed and that VAT exemption applies only to certain types of lottery.
Jamie Pinner, commercial director at DrawHouse, said operators should stop arguing and prepare for change. 'VAT is no longer a theoretical discussion but a live commercial issue. The final position is unclear, but change is coming,' he said.
The greater risk is not future tax but retrospective assessments. Companies have spent years reinvesting profit into marketing, technology, prize pools or paying dividends. A bill for past periods could force them to restructure, seek investment or exit the market. 'Adapting to lower margin is one thing. Finding cash for an unexpected bill is another,' Pinner added.
He believes prize draws will remain attractive even with VAT. The market may become more professional and transparent, which would favour serious operators and infrastructure providers.
