Hi there, Say I ran a competition where people pay me £1 to enter a competition and at the end of the month one person wins all the entry fees received, I just wondered, would I have to pay tax on all the £1 entry fees (even though I would just be giving them away at the end of the month)? Thanks for any help
Sounds like a lottery or gambling site to me. Are those legal where you are and where you are hosted? In the US legal expenses may offset and cancel legal income but you are required to report the income and deductions even if the net income is zero.
Thats something else I would be unsure of - whether it would be classed as lottery or gambling (hopefully it wouldn't be classed as either)... I'm based in the UK though and was just wondering whether I would have to pay tax on the money received even if I would be giving away all the money. Sounds a bit weird/wrong if you have to pay tax on money they you would be giving away?
I would think that, just logically speaking, the expenses of running your lottery would be netted against the revenue produced by your lottery. In the US, there's this concept that any necessary and ordinary expense of the business is deductible. Logically, paying the prize money would be a necessary and ordinary expense of a business that runs prize-awarding contests.
This would definately be classified as a lottery as you have described it. But were it legal for you to do so, as others have stated, you would report the income and the expense so the net would be the actual money left over. UK Gambling Laws