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HMRC internal manual

VAT Betting and Gaming Guidance

Lotteries: lottery selling agents

The service of selling lottery tickets is always an exempt supply. However, it is important to know in what capacity a person is selling the tickets, in order to establish who is to be attributed with receipt of the income from ticket sales.

Status of lottery ticket sellers

A person may be selling lottery tickets in one of three different capacities: as an employee of a lottery management company, as an independent selling agent on behalf of a lottery management company or promoter, or as a principal in his own right.

  • Seller as employee of a lottery management company

When the seller is employed under a contract of service with the lottery management company, it is the company that is supplying the exempt selling service. As explained in VBANDG19000, the company can apportion that part of its charges to the promoter that can be attributed to this exempt service.

  • Seller as independent selling agent

When the seller is providing a selling service on behalf of a lottery management company or promoter, the exempt output is the fee or commission received, plus any other amounts that the seller is entitled to deduct or retain from the ticket sales. Where this service is provided to a lottery management company, these retained commissions are still to be included as part of the value of the company’s standard-rated management service. The commission is effectively a VAT-exempt expense that the management company has incurred in the course of making its taxable supply of management services to the promoter.

When the seller uses one of the retail schemes, any commission received should be excluded from scheme calculations. The balance of the ticket monies that are to be paid over to the lottery management company or promoter must also be excluded from retail scheme calculations because they are not part of the ticket-seller’s turnover.

  • Seller as principal

We are aware of at least one case where the end-seller of tickets to the punter has been found to be acting in the capacity of a principal. The lottery management company had in effect sold the lottery tickets to the ticket-seller who then sold them on to the public. This is an infrequent scenario but, where it applies, all of the monies received by the end-seller from punters, less any prizes paid out by the end-seller, will be the end-seller’s exempt output. The management company will not have to treat the monies retained by the ticket-seller as part of the value of its taxable management services, and the monies received by it from the end-seller for the tickets will be exempt output of the company.

In order to determine the status of the ticket-seller, it is essential that you obtain copies of the contract or any written agreements made between the end-sellers and lottery management companies or promoters. There will not always be a chain of three traders (promoter, lottery management company, ticket-seller). In some cases there may be two or more companies intervening between the promoter and the ticket-seller. The liability of supplies made at each stage in the chain can only be established by determining what each party has contracted to supply. The general rule, however, is that exemption only applies to the actual selling of lottery tickets - whether this be by a ticket-seller to the punter or from a principal to another principal.

You can find out more about agents and principals in VTAXPER.