Specialist gambling lawyer Richard Williams has highlighted the fact that a recent Parliamentary statement from the exchequer secretary to the Treasury may have “materially shifted” the VAT landscape for prize draw operators.

Responding to a question on prize draws from MP Maureen Burke last week, MP Dan Tomlinson confirmed that “paid entries are subject to VAT at the standard rate of 20 percent,” which Williams predicted could spark “the next major tax dispute” in the sector.

“This answer has reignited debate across the prize draw sector, particularly as this appears to have been triggered by the issue of the DCMS Voluntary Code of Conduct,” said Williams. “The reality is that the market is divided: some operators account for VAT on paid entries, but many do not.”

“The position is far from straightforward. If VAT is chargeable on entries, input VAT recovery would follow, significantly affecting margins, pricing structures, historic accounting treatment, and competitive dynamics.”

Acknowledging the fact that this is HMRC’s stated view in a Parliamentary answer, and that the opposing arguments have not yet been tested in court, Williams said “given the sums involved across the sector, judicial determination may ultimately be required.”

“In the meantime, prize draw operators should be considering: potential historic exposure to VAT liability, protective steps (including voluntary disclosure and clearance where appropriate), the commercial implications of possible VAT liability, [and] the need for specialist independent tax advice.”