One of the top B2B prize draw platforms in the United Kingdom has alerted operators about deteriorating margins as tax officials intensify their scrutiny of the industry, targeting both historical and forthcoming VAT collections.
In a recent statement, Jamie Pinner, Chief Commercial Officer of DrawHouse, emphasized that VAT on prize draw entries has become a pressing issue that operators must now confront.
“VAT and taxation are no longer merely theoretical topics for the prize draw market; they have transformed into significant commercial challenges that operators prioritize,” Pinner commented. “While the ultimate outcome remains uncertain, substantial changes are imminent, and operators must adapt accordingly.”
He noted that prize draw operators who currently enjoy a gross margin of 50% on individual draws might experience a marked decline in that figure. If VAT is implemented on ticket sales, margins could diminish by 25-35%.
Pinner also cautioned about the potential for retrospective tax liabilities impacting operators. “Adjusting to a lower-margin future is one challenge. However, identifying funds to address unexpected historical liabilities presents an entirely different situation.”
“If prior liabilities come to light, it could compel some operators to restructure, pursue investments, collaborate with key infrastructure providers, or even leave the market entirely.”
HMRC Targets Tax Collections
In February, Dan Tomlinson, Exchequer Secretary to the Treasury, clarified HMRC’s stance regarding prize draws. He indicated that operators providing both paid and complimentary entry options would not qualify for VAT exemptions, noting that paid entries would attract the standard VAT rate of 20%.
This statement represents a fundamental shift in the conventional handling of prize draws in the UK. Historically, VAT has generally not been applied when operators provided a free-entry option.
HMRC has proactively reached out to operators to clarify that prize draws are subject to VAT. It is also assisting them in rectifying the VAT classification of ticket sales. Notably, prize draw operators will not benefit from the VAT exemption granted to certain lotteries, such as the National Lottery.
Despite the heightened scrutiny, Pinner remarked that prize draw margins remain highly competitive compared to sectors like sports betting and casinos, even when VAT is implemented.
“Structural adjustments create both winners and losers,” he explained. “If the market evolves to be more disciplined, transparent, and professional, it will ultimately benefit dedicated operators and reputable infrastructure providers.”
Launch of the First Prize Draw Trade Association
In light of the prevailing uncertainty, the UK established its first dedicated trade association for the prize competition sector in June.
The Prize Competition Council (PCC) committed to advocating for the voluntary code of conduct established by the UK government last year. The PCC will also serve as a unified voice for the sector.
Its initial goals include creating industry-wide guidelines, representing operators in policy discussions, and enhancing standards and protections for participants.
“The prize competition sector has experienced rapid growth in recent years,” remarked George McGregor, the association’s Independent Chair, at the time of the launch.
“The formation of the PCC signifies its increasing maturity and the understanding that every thriving industry benefits from solid representation and established standards. Our current focus is on developing an organization that members find valuable and that offers constructive leadership for the sector.”