I'm hoping someone could answer the following scenario:
A person forms a company and sets up an online business. The idea is simple - a free daily prize draw. No payment or any other consideration is required to enter the prize draw, and no purchase is necessary. Income is generated through online advertising, which is earned when people visit the site. The adverts displayed come from advertising affiliate programs. The prizes (whatever they may be e.g. books, cds, dvds etc) are purchased using the advertising revenue. These prizes may end up being purchased from both U.K. and US websites, however only people from the UK will be able to enter the prize draw. The prizes will then be sent to the winners, again all costs being paid out of the advertising revenue.
Therefore the business is not selling any of their own products and the advertisers are not sponsoring the prizes in any way.
As there is no consideration being paid by the visitors, it is not gambling and therefore not covered by the Gambling Act.
However, it is still a game of chance, and my understanding is that games of chance are exempt from VAT.
But then technically the website is supplying goods and may be importing goods from the US.
I've tried reading through the VAT guidance on the HMRC website and must admit I find it a complete minefield.
I was therefore hoping someone could confirm whether a website such as the one in question would be liable to VAT.
I would like to thank you all in advance for your help.