Bit random but I didn’t know where to post to get an answer. I was watching TV last night when an advert came up for a phone-in competition in which you could win £20,000 tax-free cash. How is that cash tax-free? What do the competiotion hosts do to get that money tax-free?
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It’s tax-free, meaning that the winner isn’t required to pay income tax on that amount. In many places, winnings aren’t required to be declared as income.
The competition hosts withraw it from a bank account.
Competition prizes and winnings are always tax free in the UK.
They are tax free because our tax laws say they are.
The competition organizers haven’t done anything. They’re just promoting it as “tax free” because they think some people won’t realise the prize is tax free and think it will make the prize more desirable.
> What do the competiotion hosts do to get that money tax-free?
Nothing. They have no say in it. It’s based on the laws in the country where the contest is held. Some countries require that you pay taxes on contest winnings, others allow exemptions. The ad you watched is simply indicating that these winnings fall under a “tax free” status in the relevant country.
Competition winnings are tax free per UK law. This isn’t the case in all countries but it is in the UK. It’s simply mentioned because people may not know it, which may entice them to give it a chance. Also since your average Joe Schmoe may not know that competition prizes are tax free, it may even sound like they’re doing something special for it to be tax free, much like you assumed the case to be by hearing it.
Well they are multiple options based on the country and specific tax laws.
1. Winnings aren’t taxed by law.
2. Winnings are taxed, but it’s the company paying then out that is required to pay them.
3. Winnings are taxed and it’s the winner paying, but the company will give you the winnings + cash to pay the taxes on it.
All gambling companies pay a special tax which varies depending on the type of gambling:
[https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/betting-gaming-duties/](https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/betting-gaming-duties/)
[https://www.gov.uk/topic/business-tax/gambling-duties](https://www.gov.uk/topic/business-tax/gambling-duties)
I think your example comes under Lottery Gaming:
[https://www.gov.uk/guidance/lottery-duty](https://www.gov.uk/guidance/lottery-duty)
in which case the competition host company will pay 12% of all revenue received (note: revenue, ie: the total amount paid in stakes) by people entering.
So we effectively tax on stakes paid rather than winnings received.
Calculate the tax owed then pay out exactly the 50k plus taxes amount so the check clears for exactly 50k
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