HMRC has begun sending “One to Many” letters to businesses that run prize draws, and the message is unambiguous: prize draws are not exempt from VAT. If you operate a prize draw and are not currently charging or accounting for VAT on ticket sales, this is the time to check your position — before HMRC checks it for you.

Letters have been issued to businesses running prize draws with both a paid and a free entry route — a structure many operators have assumed is not subject to VAT. HMRC’s position is clear: paid entries to a prize draw are subject to VAT at the standard rate of 20%, and offering a free entry route alongside doesn’t change that. The letters confirm HMRC knows some operators aren’t accounting for VAT, and ask recipients to review their records and correct the position, by registering and paying VAT over to HMRC if necessary.

“One to Many” campaigns target a whole sector at once, which means HMRC has already identified prize draws as an area of mass non-compliance — not receiving a letter in this tranche doesn’t mean you’re off the radar. There’s also a real financial incentive to act now rather than wait: if HMRC identifies errors before you disclose them, any correction is treated as a “prompted” disclosure, which carries materially higher penalties than coming forward unprompted. On top of the VAT itself, operators who aren’t currently VAT registered should also check whether prize draw income has pushed their taxable turnover over the registration threshold — that liability exists regardless of whether VAT was charged to customers at the time.

Where Can I Get Help?

If you operate a prize draw and are unsure of your position, the sensible step is to take advice before responding to HMRC or amending any returns — to confirm whether there is a taxable supply in your circumstances, and whether you should be VAT registered, and how best to correct anything that’s gone wrong.

Given the penalty gap between prompted and unprompted disclosure, early advice can make a real difference to the outcome. Get in touch if you’d like to discuss your position at info@bbvat.co.uk for a free, no obligation chat about how we can support you.