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Competition Website

Client wanting to start a competition website where you pay to enter?

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Hi

Wonder if anyone could provide any insight?  I have an existing client (with a few businesses) looking to branch into online (pay to enter) competitions - with significant prizes such as a car etc.  He is wanting me to set up a company for him to do so with a couple of his friends.  I have absolutely no experience in this area but my gut is telling me there will be a lot more to it than first thought?  Surely there will be extra regulation due to the nature (he proclaims its not gambling but a competition, however surely paying for a chance to win is gambling?)  Are there also additional tax implications due to the sector?  And i am thinking AML implications - does the sector dictate increased risk?  What else would i have to consider?  I am thinking I may hold my hands up and explain it is not my area and advise him to seek expertise - or am i just reading too much into it?

Thanks in advance for any responses...

Replies (16)

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Scalloway Castle
By scalloway
27th Feb 2021 19:18

Some information from the Gambling Commission is here. It looks like taking money for entry could be an illegal lottery.

https://www.gamblingcommission.gov.uk/PDF/quick-guides/Prize-competition...

Thanks (2)
Replying to scalloway:
By tracyannw
27th Feb 2021 21:13

Scalloway yes i had checked that out which has increased my worries to be honest. I am thinking i may need to refer on in this case. Hopefully someone here has some experience in the area?

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Replying to tracyannw:
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By Hugo Fair
27th Feb 2021 21:42

Gambling Commission have a particular perspective (of course), so the only really useful advice within their Overview document is the bit where it says (in several places) "We strongly recommend that you seek legal advice."

If you want a more business-oriented approach, a quick Google search uncovered ... https://businessadvice.co.uk/business-development/sales-marketing/how-to... ... which gives a broader outline. But your client definitely needs to speak to a relevant lawyer, not (yet) an accountant.

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RLI
By lionofludesch
28th Feb 2021 06:43

It's not gambling if it's a game of skill.

So answering a question or using your judgement to mark the centre of the ball on a photo where the ball has been airbrushed out will be grand.

As examples, have a look at tv programmes like The Yorkshire Vet, where you can use your phone to pay for entry to a competition and win a holiday in Thirsk.

Not as simple as that, of course. The skill level has to be high enough to pass muster and I would strongly advise taking specialist legal advice.

As an aside, as it's not gambling, it's not exempt for VAT either. There's a tribunal decision on Spot the Ball competitions but I can't remember which newspaper took it - might have been the late News of the World.

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Replying to lionofludesch:
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By zebaa
28th Feb 2021 09:50

Spot the ball is a really odd one. In practice often the ball is airbrushed out then replaced somewhere random for the winner to find. Much less popular than it used to be, not least, in my opinion, due to the tactic mentioned above.

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Replying to lionofludesch:
A Putey FACA
By Arthur Putey
01st Mar 2021 11:56

The TV companies get around the gaming acrts by prividing a genuine free entry route in the form of a postal entry.

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By mumpin
28th Feb 2021 11:45

I think he might struggle to open a bank account for the company once he tells the bank what the business activity will be. If you go ahead, make sure you choose the correct SIC and agree it with the client or he will blame you.

Thanks (1)
Replying to mumpin:
By tracyannw
28th Feb 2021 12:27

Strange that you should mention the SIC codes that is a point of contention, client is wanting a sales code such as 47910/45112/45190 but i would argue that he is not selling and 93290 (Other Amusement & Recreation) would be more appropriate

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Replying to tracyannw:
RLI
By lionofludesch
28th Feb 2021 12:48

tracyannw wrote:

Strange that you should mention the SIC codes that is a point of contention, client is wanting a sales code such as 47910/45112/45190 but i would argue that he is not selling and 93290 (Other Amusement & Recreation) would be more appropriate

He's selling a chance in the competition.

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Replying to lionofludesch:
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By mumpin
28th Feb 2021 13:18

I would say 92000 is more appropriate.
But I think it will set off alarm bells at any bank when he tries to open a company bank account.

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Replying to lionofludesch:
By tracyannw
01st Mar 2021 20:19

Yes but the SIC codes he wants are for sales of cars and holidays etc

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By Mr_awol
01st Mar 2021 10:57

This is the problem with accountants trying to market themselves as 'business advisors'. In reality most of us know very little about our clients' businesses and can quickly come unstuck when trying to teach them to suck eggs.

It sounds like he's trying to copy one of the many popular 'competition' models which the public are spending more and more of their furlough dole on. Some are upstanding businesses, others not so much. One of (i believe) the 'better' ones sets out their Ts and Cs here:

https://www.revcomps.com/pages/terms-conditions

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By tracyannw
01st Mar 2021 20:21

Thanks for the help everyone - I have made the decision that it is an area that I don't know enough about and have therefore advised that he looks for assistance from another accountant (and preferably also a solicitor). If you know of anyone experienced in the area feel free to let me know and I will refer the work over.

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Replying to tracyannw:
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By Mr_awol
02nd Mar 2021 11:47

Why does he need another accountant?

My own point above about accountants trying to be business advisors applies to most clients in fairness. I don't tell my farmers whether to plant winter wheat or spring beans or summer holidays. Neither do i tell my plumbers they should be aiming for a 32.7% GP or whether they should use copper pipe or plastic microbore. They sort all that out and I crunch the numbers.

I don't see why you cant do the accounts, and just give the clients the heads up on the regulatory side in a "not my area but have you looked into licenced/unlicensed lotteries, any regulations that affect you, and whether your business can use the 'competition' workaround?" kind of way.

As long as you are comfortable with the income recognition, VAT, tax/etc position I don't think the client would/should expect you to advise on the other stuff. By setting out up front the areas you are unsure of, you might be able to retain the client who is likely to be an interesting one and who i suspect will either fall flat very quickly or grow into a very profitable one (my gut says there's unlikely to be any middle ground with this one, it will either work well or not at all).

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Replying to Mr_awol:
By tracyannw
03rd Mar 2021 18:49

Mr Awol, I appreciate your help on this one. I am not only coming at it from the business advisory perspective but also from a tax and client risk perspective. I would not be sure what (if any) additional taxes the client would be due to pay - I am thinking lottery duty or remote gaming duty? Also I am thinking with the income source at a distance and over the internet it may raise the risk profile for AML? To be honest the business area is not one I am familiar with and I wouldn't want to give bad advise and don't have time to invest in additional learning which would only be applicable for one client. I am hoping not to lose the other business from the client (early indications are good) but time will tell. Thanks again - feedback is always welcomed.

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By OldParkAcct
02nd Mar 2021 08:32

He doesn’t need an accountant, he needs a solicitor.
If he is planning on advertising online, then all the social media sites ask for copies of your legal advice before accepting advertising from these sorts of competitions.

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