Measuring the profits (particular trades): Lotteries promoted by sport supporters’ societies: SP C1, terminology, establishment of conduit
S19(1) Gambling Act 2005 (GA 2005)
A supporters’ club may promote or run a lottery in order to provide funds for a football, rugby, cricket or other sports club. Such lotteries are regulated under the GA 2005 as ‘non-commercial society’ lotteries. Such lotteries must be registered with the local authority but, where the size of the lottery exceeds certain limits, an operating licence from the Gambling Commission is required. The society may then authorise a promoter to run the lottery.
Non-commercial societies are not restricted to sporting societies. The following guidance is only expressed in terms of sports club supporters’ societies but it applies equally to all non-commercial societies (see BIM61605 for details).
Statement of Practice C1
The tax treatment of sport supporters’ lotteries is covered in Statement of Practice C1 (SP C1). The text of SP C1 is as follows:
‘Lotteries and football pools
Where a football pool or small lottery is to be run by a supporters club or other society on the basis that a stated percentage or fraction of the cost of each ticket will be given to a club or body conducted and established wholly or mainly for one or more of the purposes specified in [S19(1) GA 2005], HM Revenue and Customs will accept that the donation element as stated in the cost of each ticket may be excluded in computing for tax purposes the profits of the trade of promoting the pool or lottery.
A football pool run by a supporters’ club had its appeal against tax assessment upheld by the Special Commissioners. When this question was raised in Parliament on 14 December 1956, Mr Henry Brooke said:
“The football pool in this case was organised on the basis that a specified percentage of the sum received from each competitor would be paid as a gift to the football club. The Special Commissioners have held that this donation element formed no part of the receipts to be taken into account in computing for income tax purposes the profits of the trade of promoting the pool. This decision will be accepted by the Revenue as governing all cases where a football pool or small lottery is run by a supporters' club or other society on the basis that a stated percentage or fraction of the cost of each ticket or chance will be given to a club or body established and conducted wholly or mainly for one or more of the purposes specified in [S19(1) GA 2005].”’
In normal usage, the word ‘club’ can be used to refer either to the sport supporters’ society organising the lottery or to the eventual beneficiary receiving the funds raised by the lottery.
In the following guidance the body promoting or running the lottery is referred to as the ‘society’. The body which is the eventual beneficiary of funds from the lottery is referred to as the ‘club’ or ‘beneficiary club’.
Establishment of a conduit
Promoting a lottery is a trade and the liability to tax is not affected by the destination or application of the profits (Hutchinson & Co (Publishers) Ltd. v Turner  31TC495).
However the situation is different where a lottery is organized by a society on the basis that a stated percentage or fraction of the ticket purchase price (or other stake money) is to be given to a club or body established and conducted wholly or mainly for one of the purposes specified in S19(1) GA 2005. In that situation we accept that the society promoting the lottery simply acts as a conduit through which the money passes from the donor to the club.
The result (as set out in SP C1) is that the ‘donation element’ of the ticket price (or other stake money) does not form part of the trade receipts of the society promoting the lottery.
The exclusion from receipts of the ‘donation element’ may mean in many cases that the tax liability of the society is negligible (but see BIM61615).
See also BIM24792 onwards as regards the trading activities of a voluntary organisation.