Omaze in court over tax dispute on luxury house prize draws

Luxury house prize draw platform Omaze has appealed against HMRC over whether paid entries in its prize draws are subject to standard-rate VAT.

Omaze lists itself on its website as “not a charity raffle, house or cash raffle or house or cash lottery but a prize draw”.

An organisation that offers a free entry route to a draw, such as a postcard option, avoids being regulated as a lottery under the Gambling Act, and HMRC categorises the service as a prize draw, meaning its paid entries do not qualify for the VAT exemption that regulated lotteries receive.

However, earlier this year, Labour MP Dan Tomlinson, who was responsible for HMRC and tax policy until July, 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 per cent.”

This landmark dispute went to the First Tier Tax Tribunal, which heard the appeal on Friday, with a decision expected in Spring next year.

“From Omaze’s point of view, the case will be worth millions because if they lose, they will have to pay 1/6^th of every £1 received for entries to HMRC,” Sue Rathmell, VAT Partner at accountancy firm MHA, told City AM.

“HMRC can ask for VAT for the previous four years from the start of the dispute, and this is money that will have already been paid to charities. Omaze therefore has a real battle on its hands which is likely to lead in the long run to less money being given to charities,” Rathmell said.

Appeal ‘seeks clarity and consistency’ for industry

Since launching in the UK in 2020, after being founded in the US in 2012, Omaze has run prize draws where entrants can win multi-million-pound houses, cars, or money for a relatively small fee. The houses are located across the UK, with many in desirable areas such as the Cotswolds and Cornwall.

The fundraising platform donates a proportion of the draw proceeds to a charity, and guarantees a minimum donation of £100,000 to its partner charities with each draw.

“Our appeal seeks clarity and consistency in how VAT applies across the prize draw industry. Omaze has raised more than £150m for UK charities, yet is one of the few prize draw operators HMRC has required to pay VAT on sales. As it would for any business in any sector, this disparity affects our ability to operate sustainably,” an Omaze spokesperson said.

The spokesperson added: “It also affects our ability to continue raising significant funds for good causes. Having sought to resolve the issue for several years, we are pursuing this appeal to establish a level playing field. We appreciate the court’s attention to this issue.”

In a statement, an HMRC spokesperson said: “Our position is that prize draws offering both paid and free entry routes are not eligible for VAT exemption and paid entries are standard rated for VAT. We await the Tribunal’s decision.”