Understanding starting a lottery business

Running an illegal lottery could land you with a £5,000 fine and a prison sentence, so it's essential you brush up on the law

Lottery business law

If you’re thinking of starting a Lottery business, be aware that the UK has strict laws regarding lotteries and the industry is heavily regulated by the Gambling Commission.

Running an illegal lottery could result in a prison sentence and £5,000 fine, so it’s essential that you understand lottery business law as laid out in The Gambling Act 2005.

Lottery definition

Under the Gambling Act, a lottery is defined as something that players pay the same price to enter and has at least one prize that’s allocated through a process of pure chance.

Examples of a lottery include a sweepstakes, raffle or tombola. Competitions that depend on skill, knowledge or judgement, such as requiring players to answer a question to enter a draw, are not classed as lotteries.

Types of lotteries and licences

There are different types of lotteries, some you need a licence to operate and others you don’t. Here are the five types of lottery that are exempt from licencing, in all these cases no rollovers are allowed

  • Private society lotteries – these must raise funds to support the work of the society, a charity or good cause
  • Work lotteries – are for colleagues who work on the same premises. They must be non-profit and raise money for a charity or good cause
  • Residents’ lotteries – are only for residents living in a single set of premises. Again, the lottery must be non-profit and raise money for a good cause
  • Customer lotteries – must be run by a business on its premises for its customers only. Prizes cannot have a value of over £50
  • Incidental lotteries – are held at events such as fetes and must not be for commercial gain, but to raise money for good causes. Tickets must be sold at the event and no more than £500 should be spent on prizes, £100 can be deducted for expenses

You will need an operating licence from the Gambling Commission to run these types of lotteries:

  • Local authority lotteries – these are run by a local authority that can use the net lottery profits to assist with their running costs. The maximum prize limit is £200,000 per lottery
  • Large society lotteries – must generate a minimum of £20,000 in ticket sales per lottery, or £250,000 per year. These lotteries should be non-commercial and raise money for culture, sport or charitable causes. Again, the maximum prize per lottery must not exceed £200,000

Although you don’t need an operating licence, you do have to register with your local authority if you run:

  • Small society lotteries – ticket sales for these lotteries must not exceed £20,000 per lottery, or £250,000 per year. In these lotteries, the maximum prize limit is £25,000

Lottery rules

One of the most important stipulations in the Gambling Act is that all society and local authority lotteries must give at least 20% of their proceeds to fundraising. The remaining 80% can be used for expenses and prizes. For example, The Health Lottery gives at least 20p from every £1 ticket sale to health-related causes across Great Britain.

If you run a society or local authority lottery, you must follow additional rules set out in the Gambling Act. These include making sure players are 16 or over and that tickets aren’t sold in the streets. Each ticket should list the following information:

  • Name of the society/authority
  • Ticket price
  • Name and address of the organiser
  • Date of the draw

If the lottery can be played remotely, via the internet or telephone for example, then large society and local authority lotteries must also get a remote operating licence from the Gambling Commission. Lotteries can choose to employ an External Lottery Manager to run the lottery, but to do this they need a lottery manager’s operating licence.

You can find out more about UK lottery regulations and the Gambling Act in this guide from the Gambling Commission.

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