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HMRC internal manual

VAT Betting and Gaming Guidance

Lotteries: lottery management companies

What is an external lottery manager?

An external lottery manager (ELM) can be an individual, partnership or limited company that provides a lottery management service to the promoter (i.e. a society, development association or local authority). This is normally a comprehensive service which includes arranging for the printing and distribution of tickets, organising publicity and paying out prizes. The manager is required to hold a manager’s operating licence, under the terms of the Gambling Act.

Liability of lottery management services

The supply of a lottery management service is standard-rated. A company providing such services must account for VAT on the following basis:

  • any fee or commission paid by the lottery promoter plus any additional amounts retained from gross ticket sales to cover the costs of running the lottery (this includes commission received and retained by selling agents used by the lottery management company - see VBANDG20000); less
  • the amount paid out in prizes (or VAT-inclusive costs of goods given as prizes).

However, if a lottery management company also sells tickets itself by using its own outlets and employees, rather than merely arranging for their sale by independent sellers, it will be entitled to exempt this direct selling service like any other ticket seller. If the company does not specify a separate charge for its own selling service, it must make an apportionment of its global charge as between the exempt and standard-rated services provided to the promoter. The exempt element of the charge must be shown separately on the tax invoice.

Lottery management companies may argue that a proportion of the charge should be zero-rated because an element represents consideration for zero-rated advertising supplied to charities. Normally lottery management services are to be treated as a single supply of administration services, with the exception of any ticket-selling actually performed by the lottery management company itself. In order to substantiate a claim for zero-rating it is necessary for the company to satisfy two requirements:

  • there must be a clearly identifiable and severable supply of advertising to a charity; and
  • this separate advertising supply must satisfy the criteria for zero-rating.

In considering this question, you should obtain a copy of the contract between the lottery promoter and the lottery management company. This will indicate whether or not the parties have arranged for the advertising as a separately identifiable supply distinct from the general administration services. How the charge made by the lottery management company is calculated and invoiced will also be an indicator of the supply position.

Even where there is a separate supply of advertising, the mere mention of a charity’s name on lottery tickets will not normally be sufficient to qualify for zero-rating. Whether or not zero-rating is permissible can be resolved by referring to guidance such as VCHAR - VAT Charities and VBOOKS.