Prize Provision Services thought it had done the compliant thing by using the ‘society lottery’ exemption for its charity-linked ‘Great Weather Lottery’ prize event. But Revenue and Customs classified it as betting and claimed nearly £250,000 duty.
Topic: Promotion marketing
Who: Prize Provision Services Limited and Revenue and Customs
Where: Manchester Tribunal Centre
When: August 2005
A Manchester Tax Tribunal grappled with the question of whether the running of amalgamated charitable lotteries amounted to betting and thereby attracted liability to pay betting duty.
The prize event in question was operated under the name 'The Great Weather Lottery'. Participants were required to choose six numbers from 0 to 9 and enter them in boxes, one number per box. The boxes corresponded to six geographical locations – Corfu, Istanbul, Tenerife,, Innsbruck, Edinburgh and Stockholm – chosen because their initial letters, in that sequence, spelt CITIES (as we are sure you spotted).
On each day from Monday to Friday the Daily Telegraph prints the maximum Fahrenheit temperature recorded at those six places on the preceding day. If three or more of the numbers chosen by a participant matched the final digits of the printed temperatures in the correct sequence, he won a prize: £2 for three correct numbers, £20 for four, £200 for five and £10,000 for all six. The value of each prize was fixed: no matter how many winners there were on any day, each received the appropriate advertised prize.
The cost of entering into the GWL was 20p per "line" per day. The promotional leaflet provided three 'lines' of boxes. Although the full terms and conditions could be applied for and indicated that a one-off entry was possible, the leaflet itself emphasised a continuing commitment to play the game through monthly payments by bank standing order. The monthly cost of a single line was £4.34.
Under the contractual arrangements in place between the charities and PPS's sister company Lottery Services Providers Limited, at least 31.5% of the gross receipts were to go back to the charities concerned, around 42-55% was to be allocated to prizes, with the balance going back to LSP to cover its administration expenses.
The scheme was a nice little earner for all concerned. £229,086 was the total amount of betting duty claimed by Revenue and Customs in respect of "stakes" between 1 October 2000 and 31 August 2003. The relevant rate was 6.75% up to 6 October 2001 and 15% of the gross profit thereafter. How much in terms of total "stakes" does this suggest? Go figure, but we are talking well into seven figures however you look at it.
"Not a lottery" argument:
Revenue and Customs argued that a number of factors militated against the GWL being characterisable as a "society lottery" under Section 6 of the 1976 Lotteries and Amusements Act. They pointed to the fact that no attempt was made to match the prizes won to the individual charities.
They emphasised that on the basis of PPS's own monthly accounting for the scheme, it did not in reality consist of several society lotteries within the 1976 Act, but amounted to a single prize fund for a single game for which the individual charities merely provided participants in return for reward.
Another Revenue and Customs argument was that participants in a lottery must be in some form of competition with each other, so that for instance the value of prizes is affected by the number of winners. This was not happening here.
Revenue and Customs also argued that GWL could not be a lottery because winning participants did not receive a share of an identifiable prize fund consisting of the aggregate of participants contributions.
"Skill involved" argument:
PPS unsurprisingly opposed these arguments. Initially it tried to suggest that this was a skill based competition under Section 14 of the 1976 Act, but in the face of expert evidence from Revenue and Customs, this argument failed.
The Tribunal analysed the GWL and referred to numerous well-tried and trusted cases on the proper definition of a lottery and on when betting can be regarded as taking place. The distinction pushed by PPS was that a fundamental feature of betting was that if a punter placed a bet and won, he would receive back his original bet plus winnings on top. With GWL this was not the case: participants paid a fee in order to enter, which could never be returned to them, win or lose.
It could not be said that the participation fee of 20p per day per line was returned to a prize winner: the advertised prizes were of specified sums and that was precisely what a winner received. He did not receive 20p back in addition.
"Lottery" not to be narrowly interpreted:
In the Tribunal's view, the term 'lottery' was not to be narrowly interpreted. Parliament left it to the Courts to decide what constitutes a lottery by reference to the "general underlying idea". It did not matter, the Tribunal felt, that winners received a pre-determined amount regardless of the number of winners, rather than a share of an identifiable prize pool.
"No betting" verdict:
Furthermore, the Tribunal did not agree that lottery participants must be competing with each other and all in all the Tribunal came to the view that GWL was indeed a lottery and that no betting duty was payable. However, in a masterly exposition towards the end of their judgement as to the non-scientific basis upon which they arrived at their decision, they expatiated:
"It is plain from the judicial comments we have quoted above that our task in determining whether the scheme amounts to a lottery or series of lotteries, on the one hand, or fixed odd betting on the other, cannot be discharged by simply applying a formulaic test which is guaranteed to deliver the correct answer.
A lottery may have some of the characteristics of betting yet remain a lottery; and betting may have some of the characteristics of a lottery – most obviously that the outcome of the bet may be dependent on chance – yet remain betting. We agree with [Counsel for PPS] that we should apply common sense, and ask ourselves whether, overall, the scheme more closely resembles the classic description of a lottery … or of betting".
Why this matters:
So when it comes down on it, it's gut feel and plan old common sense that should dictate whether its betting or a lottery. So that's all crystal clear then!
If ever there were a case that demonstrated the crying need for fundamental reforms of UK gambling lottery and competition laws, this was it. Roll on the coming into force of The Gambling Act 2005 in 2007. No guarantees, mind, that it will make life much easier on these issues!