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HMRC internal manual

Business Income Manual

Measuring the profits (particular trades): Lotteries promoted by sport supporters’ societies: income not excluded

In calculating the profits of the lottery for tax purposes, the only amounts excluded from trade receipts under SP C1 are the donations made directly by the lottery customers to the ultimate beneficiary. These amounts are measured by the percentage or fraction of the stake money for each ticket or chance which is specified as a donation at the point of sale.

Some societies make profits from their lotteries over and above the donation element in the ticket or chance and these profits may be passed to the beneficiary club as an additional donation. There is, however, a crucial distinction for tax purposes between a donation made by the customer buying the ticket or chance (where the society simply acts as a conduit in passing the donation on to the club) and the situation where there is a donation of realised trading profits from the lottery.

Where the lottery makes a profit (after excluding from its trade receipts the donation element specified at the point of sale in any ticket or chance) then this profit is taxable. Any further donation out of this profit is not itself allowable as a trading expense.

Normal trade profits principles should be followed in considering the taxability of amounts received from lotteries in the hands of the beneficiary club. The treatment in the hands of the beneficiary club has to be considered independently of the question of whether donations received by the society promoting the lottery have been excluded from the trading receipts of the lottery under SP C1.