How are prizes in free lotteries treated?
Any goods given as prizes should be treated as disposals for no consideration under the “business gift” rules (as explained in Notice 700 The VAT Guide). VAT has only to be accounted for if the tax exclusive cost of the prize exceeds £50. Input VAT will then be deductible in the normal manner. However, there are certain exceptions to the rules: • VAT incurred on holidays provided as prizes cannot be reclaimed under the business entertainment provisions; • if you purchase a car to be given away as a prize, you may only reclaim the input tax if you do not make the car available for private use before it is given away; • if you reclaim VAT on the purchase you must declare output tax on the tax exclusive cost of the car when it is given away. Any input tax claimed will still be subject to the partial exemption rules; • further guidance can be obtained in Notices 700/35 Business Gifts and 700/64 Motoring Expenses.
