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HMRC internal manual

VAT Betting and Gaming Guidance

HM Revenue & Customs
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Lotteries: what is a lottery?: the National Lottery

The National Lottery was introduced by the National Lottery Act 1993. It empowers certain bodies to run the National Lottery under sections 5 and 6 of the Act. The Director General has authorised a ‘body corporate’ under Section 5 to run the National Lottery - this is currently the Camelot Group plc. Under section 6, the Director General may also authorise a ‘body corporate’ to promote or run other lotteries as part of the National Lottery. Camelot has also been authorised under section 6, and there are no other such bodies authorised at present.

What is the liability of lottery services?

Section 5 or 6 bodies are obliged to pay the Secretary of State a sum of money out of the proceeds of the lottery games that form part of the National Lottery. This sum of money which is paid by either a Section 5 or 6 licensed body to the Secretary of State may consist of licence fees, funds for good causes, etc. The statutory issuing of the licences, and the other payments made to the Secretary of State, are non-business activities and are thus outside the scope of VAT. However, the supplies of services made between Section 5 bodies and Section 6 bodies are not seen as outside the scope and would fall under the normal rules of VAT. This means that if a section 5 body requires the selling services of a Section 6 body, then the commission received will be standard-rated for providing services of game design, printing, distribution and promotion, similar to a Lottery Management Company (see VBANDG19000).

Any commission received by a section 5 body for supplying tickets directly to a retailer will be treated as exempt.

What are the different types of National Lottery games?

  • Draw-based Game - this type of game is where the lottery tickets are sold through on-line computer terminals in retail shops such as newsagents and supermarkets. Each player will be able to select his/her own ticket numbers. If he does not want to choose his own numbers then a random number generator in the terminal will pick the numbers for him. There is a twice-weekly televised draw at which the winning numbers are chosen. Smaller prizes are claimed by the winner directly from the retailer.

The retailer earns a commission which he retains out of the proceeds of the ticket sales. This commission income is exempt.

  • Interactive Instant Win Game - this game is played on the National Lottery website. When a player makes a purchase, the game is randomly generated. However, the result is predetermined.
  • Scratchcards - the games use scratchcards which enable the player to tell as soon he has bought the card whether or not he has won a prize. The retailer will be provided with bundles of these tickets by the licensee at face value less a discount. Once he has ‘activated’ a book of tickets, the retailer will then sell these tickets to players. A player who has scratched a card and discovered that he has won a prize can present the card for validation by the retailer, using his computer terminal.