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Ltd Co client wants to give Goods away as a prize

Taxable? VAT?

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Hi,

 

Apologies, but not come across this before.

 

New client, Limited company, trade is buying vans and converting to motorhomes for sale.

 

They have emailed me today saying they are thinking of offering one as a prize. I've gone back and asked if there is an entry fee for the competion, who is it open to etc.

Few (might be stupid) questions

 

1) Is the cost of the van and the fitout still allowable in the P&L? 

2) I assume the entry fees ( if applicable) are income taxable via CT?

3) Is there any tax burden on the winner?

4) any VAT headaches?

 

 

Replies (17)

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By David Ex
21st Sep 2021 16:23

Have you had any initial thoughts based on your research so far?

He may need to register with someone (local council?) if he is running a lottery.

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By I'msorryIhaven'taclue
21st Sep 2021 17:18

I seem also to recall something of a "skill" element being necessary (such as, for example, a caption competition - maybe as a tiebreak - or alternatively requiring contestants to select the correct answer a, b or c to an elementary question).

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Jason Croke
By Jason Croke
21st Sep 2021 16:48

You can only ever reclaim VAT if you make a sale with VAT on, so if the plan is to buy a van, convert to a motorhome and then give it away for free, then no input tax is recoverable on the van or the conversion costs.

Lottery and raffle tickets are VAT exempt and as others have noted, usually you can't just run a lottery without following specific rules, worth a look here https://www.theukrules.co.uk/rules/legal/community/running-a-raffle.html but remember, you're an Accountant, not a lawyer, so just focus on answering the tax questions, let the client figure out the other stuff.

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By Hugo Fair
21st Sep 2021 17:18

"let the client figure out the other stuff" ... including whether there is a viable business doing what is proposed (even without the lottery aspect)?
There've been an awful lot of posts from people (or their clients) recently proposing exactly the same way to riches ... almost as though there's a YouTube (or similar) clip out there promoting the idea?

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By Paul Crowley
21st Sep 2021 18:46

Yas
I have noted numerous van to motor home questions

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Jason Croke
By Jason Croke
22nd Sep 2021 09:49

I think with staycations and the cost of UK hotels being stupidly expensive, a lot of people turned to caravan and camper vans as a cheaper holiday option, hence the growth of the convert a van sector.....also, with the prices of bricks and mortar homes also stupidly expensive, people are looking to canal boats and camper vans as a cheaper form of living accommodation.

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RLI
By lionofludesch
21st Sep 2021 19:28

The pitfalls from both a tax and gambling point of view are immense.

First and foremost, it's essential that it's not a lottery.

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By I'msorryIhaven'taclue
21st Sep 2021 20:17

Does the skill element of eg answering an easy-peasy question avoid a lottery situation?

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RLI
By lionofludesch
21st Sep 2021 20:23

Can't be too easy.

There was a case on it some years ago. Maybe 10 or 15.

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Replying to I'msorryIhaven'taclue:
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By Tax Dragon
21st Sep 2021 20:40

Why didn't you go into law, I'msorry? You seem to prefer it to accountancy.

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
21st Sep 2021 20:58

My careers officer advised against law. Come to think of it, he advised against almost everything. In the event it was a close-run choice between trainee accountant and apprentice flagpole painter, and vertigo got the better of me ;-)

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Replying to I'msorryIhaven'taclue:
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By Tax Dragon
22nd Sep 2021 07:19

You'd've been front of my queue for law or stand-up. (Judge in that exotic dancer case shows it's possible to combine both.)

Mind you, this could explain why (being a) careers officer was never an option for me.

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
22nd Sep 2021 07:31

I'msorryIhaven'taclue wrote:

Does the skill element of eg answering an easy-peasy question avoid a lottery situation?

There was a News of the World Spot the Ball case in the 1970s, which NoW won, hinging on there being a skill element so that they didn't need to pay 8% betting duty on the entry fees.

Unfortunately, because there was a skill element, the entry fees weren't covered by the VAT gambling exemption and were standard rated.

Massive own goal.

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
22nd Sep 2021 07:31

I'msorryIhaven'taclue wrote:

Does the skill element of eg answering an easy-peasy question avoid a lottery situation?

There was a News of the World Spot the Ball case in the 1970s, which NoW won, hinging on there being a skill element so that they didn't need to pay 8% betting duty on the entry fees.

Unfortunately, because there was a skill element, the entry fees weren't covered by the VAT gambling exemption and were standard rated.

Massive own goal.

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By Tax Dragon
22nd Sep 2021 07:14

jpf1101 wrote:

I've gone back and asked if there is an entry fee for the competion, who is it open to etc.

@OP, why did you do this? If it's because you think the information you garner relevant to answering your few (might be stupid) questions, how do you expect the forum to answer those same few questions without that information?

VAT aside, apparently.

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By jpf1101
22nd Sep 2021 09:12

Thank you all who have responded, I'll happily admit I am clueless as I clearly stated I have never come across it before, so I'd rather ask simple/seemingly stupid questions of both the client and the wise heads here in order to find out the nature of the competition process and inherently the accounting and tax treatment..

I asked if there was an entry fee for pretty obvious reasons... there will be a debit and credit..

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Replying to jpf1101:
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By Tax Dragon
22nd Sep 2021 12:21

Whether there is an entry fee could be relevant to the tax as well as the debit and credit issue. Your other questions - who is it open to, and even more so your etc - could be relevant to the tax. So I'm glad you asked them, even though I don't see the relevance to your debit and credit issue.

When you have the information, ask your question again (with that info included) and you'll probably get more help(ful answers) than I have provided.

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