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HMRC writes to businesses running prize draws

Author: ICAEW Insights

Published: 03 Aug 2026

HMRC has written to businesses that run prize draws offering both paid and free entry routes to remind them that paid entries are subject to VAT at the standard rate of 20%.

In the one-to-many campaign letter, HMRC encourages the business to check that it is applying the rules correctly. Businesses that find they have made an error will need to make an adjustment on their next VAT return or contact HMRC online or in writing, depending on the circumstances. HMRC has published guidance and an online tool that can help businesses determine the appropriate route for correcting an error.

The business is not required to take any action where it finds that it has correctly accounted for VAT on its competitions.  

Should HMRC later find an error that it was not told about, it will treat any disclosure made by the business as "prompted", potentially increasing the amount of any penalties charged by HMRC. Further information is provided in HMRC factsheet CC/FS7A. 

HMRC’s view reflects a statement made in parliament on 17 February 2026 by Dan Tomlinson MP, Exchequer Secretary to HM Treasury, who confirmed “that prize draws offering both paid and free entry routes are not eligible for VAT exemption and paid entries will be subject to VAT at the standard rate of 20%”.

Size of the UK’s prize draw market 

Research published by the government in June 2025 reveals that, at the time the research was conducted, an estimated 7.4m adults participated in prize draws in the last year, spending an estimated £1.3bn. The research also found evidence that the market was growing, with 60% of operators expecting an increase in ticket sales in the next three years. 

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