Pay VAT on competition entries

[SERVALNET]

Hi, if I run a prize competition on my website (imaginary example): pay £100 to enter, win a prize if your name is pulled out of a hat. 10 entrants = £1000. Would I have to pay HMRC £200 or are the entry fees exempt in any way?

IF exempt, would I even have to register for VAT (Assuming entry fees were over 84k)?

 

[Scalloway]

If it is a game of chance then it is exempt from VAT but the Gambling Commission may be interested.

 

[STDFR33]

Would I have to pay HMRC £200

Do you mean £166.67?

IF exempt, would I even have to register for VAT (Assuming entry fees were over 84k)?

Do you mean £85,000?

 

[Mr D]

Hi, if I run a prize competition on my website (imaginary example): pay £100 to enter, win a prize if your name is pulled out of a hat. 10 entrants = £1000. Would I have to pay HMRC £200 or are the entry fees exempt in any way?

IF exempt, would I even have to register for VAT (Assuming entry fees were over 84k)?

Until you do register for VAT you never collect it on anything.

Once you do register for VAT and have to start charging it then your buyers should be paying it, you merely act as an unpaid tax collector for HMRC.

You do need to check if your competition meets requirements for competitions - some stuff its illegal to run.

 

[SERVALNET]

If it is a game of chance then it is exempt from VAT.

Would a game of skill/prize competition, for example, also be exempt?

Do you mean £166.67?

If a customer paid £1000 into my bank, I'd pay HMRC £200, right?

 

[Scalloway]

Would a game of skill/prize competition, for example, also be exempt?

No a game of skill will be standard rated.

If a customer paid £1000 into my bank, I'd pay HMRC £200, right?

No. £1,000 is the gross figure, VAT is 1/6 of the gross

1/6 of £1,000 is £166.67

5/6 of £1,000 is £833.33

20% of £833.33 is £166.67

£833.33 + £166.67 = £1,000.

 

[justintime]

If a customer paid £1000 into my bank, I'd pay HMRC £200, right?

If you wanted to yes, but you'd be overpaying.

VAT on a sale of £1000 is £166.67. The nett price is £833.33 and if you had 20% VAT you get £1000

(EDIT: Sorry Scalloway, our posts crossed)

 

[SERVALNET]

No. £1,000 is the gross figure, VAT is 1/6 of the gross

VAT on a sale of £1000 is £166.67. The nett price is £833.33 and if you had 20% VAT you get £1000

Thanks for the help.. Off topic here, but I'm going to quote gov.uk as they "seem" to agree with my logic that if a customer pays me £1200 I'd owe £150.

ExampleYou bill a customer for £1,000, adding VAT at 20% to make £1,200 in total.

You’re a caterer, so the VAT flat rate for your business is 12.5%.

Your flat rate payment will be 12.5% of £1,200, or £150.

How am I going wrong?

 

[Mr D]

Thanks for the help.. Off topic here, but I'm going to quote gov.uk as they "seem" to agree with my logic that if a customer pays me £1200 I'd owe £150.

How am I going wrong?

You are not going wrong. Talking about 2 schemes.
Either way the customer pays the same.

Flat rate is straight percentage for that business type. That percentage of your total sales is what would be paid out.
Standard rate the rate payable may be somewhat different as would calculate based on 20 percent rate charged to customer minus the vat already paid out for goods and services. So may work out similar or may be different. Just depends which scheme you choose or are required to use.

 

[spidersong]

Thanks for the help.. Off topic here, but I'm going to quote gov.uk as they "seem" to agree with my logic that if a customer pays me £1200 I'd owe £150.

How am I going wrong?

You're also going wrong as you're not a caterer and so on that scheme your percentage would be different, you're also going wrong when quoting your self as you'd said if a customer paid you £1000 you'd pay HMRC £200, not that if they paid you £1200 you'd pay £150. As others have said the VAT percentage is added onto a net charge to give you the gross charge, not applied to the gross charge to give you an amount payable, this stays the same whether on the flat rate scheme or not, the flat rate scheme will however make a difference to how much of the VAT you've charged you actually need to pay to HMRC.

When you said game of skill you'll need to make sure that you're definition of game of skill matches both HMRC's definition and the gambling commissions. Spot the Ball competitions have a long history of arguments over skill/chance in the VAT sphere, also do you mean that anyone that has the skill will get the prize so that there's no element of chance, or will it eventually come down to all who meet the criteria being drawn at random chance from a hat?

Have a look at the VAT notice on gaming here: https://www.gov.uk/guidance/how-vat-applies-to-betting-gaming-and-lotteries-notice-70129

And to answer the other part of your question if entries are exempt or Outside the Scope (stake money) then no you don't have to register for VAT, you only need to register when taxable turnover (e.g. stuff you would charge VAT on or which is zero rated) exceeds the registration limit.

 

[SERVALNET]

You're also going wrong as you're not a caterer and so on that scheme your percentage would be different, you're also going wrong when quoting your self as you'd said if a customer paid you £1000 you'd pay HMRC £200, not that if they paid you £1200 you'd pay £150. As others have said the VAT percentage is added onto a net charge to give you the gross charge, not applied to the gross charge to give you an amount payable, this stays the same whether on the flat rate scheme or not, the flat rate scheme will however make a difference to how much of the VAT you've charged you actually need to pay to HMRC.

That was just an example showing how HMRC would also expect £200 if a customer paid £1000 into my bank. Whether 12.5% or standard 20%, £1000 or £1200.. their calculation still shows I would owe them £200. If they are getting £150 from £1200 at 12.5% they would also get £200 from £1000 at 20%.

 

[STDFR33]

That was just an example showing how HMRC would also expect £200 if a customer paid £1000 into my bank. Whether 12.5% or standard 20%, £1000 or £1200.. their calculation still shows I would owe them £200. If they are getting £150 from £1200 at 12.5% they would also get £200 from £1000 at 20%.

You don't understand VAT.

You can only be on one VAT scheme.

You can only be on a VAT scheme if you are registered for VAT.

If you only make exempt supplies, you cannot register for VAT.

 

[Mr D]

That was just an example showing how HMRC would also expect £200 if a customer paid £1000 into my bank. Whether 12.5% or standard 20%, £1000 or £1200.. their calculation still shows I would owe them £200. If they are getting £150 from £1200 at 12.5% they would also get £200 from £1000 at 20%.

The customer pays £200 regardless on a £1200 transaction. They pay 1/6th of the total.
On a £1000 transaction they pay 1/6th, £167 odd.

What you pay to HMRC is usually not 20% no matter which scheme. Because flat rate is a percentage that's applied to sales / turnover while standard scheme takes account of VAT already paid out for goods and services.
My flat rate is 7.5% last I looked for my type of business. Not that much different than what I handed over to HMRC on standard scheme.

 

[SERVALNET]

You don't understand VAT.

You can only be on one VAT scheme.

You can only be on a VAT scheme if you are registered for VAT.

If you only make exempt supplies, you cannot register for VAT.

I understand the different schemes. I think you need to read my messages again

flat rate is a percentage that's applied to sales / turnover while standard scheme takes account of VAT already paid out for goods and services.

Oh, (regardless of percentage) they calculate Flat rate and Standard differently. Glad I was right and not going mad.

 

[Mr D]

I understand the different schemes. I think you need to read my messages again


Oh, (regardless of percentage) they calculate Flat rate and Standard differently. Glad I was right and not going mad.

To the customer its the same rate charged.
To you its more or less handed over to HMRC from that money.

One scheme may work out slightly better cash wise for a business than another. Could be flat rate, could be the standard scheme.

 

[justintime]

That was just an example showing how HMRC would also expect £200 if a customer paid £1000 into my bank. Whether 12.5% or standard 20%, £1000 or £1200.. their calculation still shows I would owe them £200. If they are getting £150 from £1200 at 12.5% they would also get £200 from £1000 at 20%.

You receive £1000 in the bank. Your invoice to the customer would be £833.33 + VAT of £166.67 regardless of which scheme you were on. If you are on the standard scheme then £167.67 is the amount of VAT you hand over to HMRC (less any purchases that are reclaimable) On the flat rate scheme you would record the sale as £833.33 + 20% and hand over 12.5% of £1000 ergo £125.00

Where you are getting confused is that 20% VAT on £1000 is £200 but in that scenario your customer would pay £1200 and HMRC would get either £200 or £150, as per your example.