Last week I was excited to attend the Yorkshire Accountancy Awards ceremony with some of our team as finalists for the Tax Service Award. Having spent so much time together virtually over the last 18 months, it was a great opportunity to for us to get together in person and enjoy ourselves.

Whilst we didn’t come away with the title this time, it did get me thinking about the taxation of winnings, which is an area of tax that can generate surprising results.

When I refer to winnings, let me be a bit more specific…

On a very simple level, if you go to the races and pick a winner you are not taxed on those winnings. Indeed, if you were to rack up losses by picking the wrong horse, then there’s no tax relief for that either. Likewise, if you win the lottery this too is non-taxable.

However, if you happen to be a professional golfer and you win a prize, you should expect that to be taxable because it is your professional occupation.

Where taxation on winnings is perhaps less obvious is when you are given a reward in return for something you have done. This could be a prize for being the top salesperson in your company or a reward for referring someone to a recruiter. Another example is being provided with a car to drive and endorsing that car for the manufacturer – not something I get asked to do but a practice that will be familiar to those with a public profile. In all these situations, there will be some tax to pay, the question then is, who pays it?

Who pays the tax?

It may well be that the company providing the prize has entered into an arrangement with HMRC to ensure that the incentive appears to be tax free on the recipient – it doesn’t feel like quite the same reward if you then have to pay tax on it! However, if you are self-employed and receive something like this, you should consider whether it is taxable. If as an employee you receive this type of reward, it’s worth checking whether the tax has been dealt with by the person or company making the gift.

Here to help

As ever, the rules are complex and it’s vital to understand the precise situation, but if you are fortunate enough to win something, it’s worth just thinking briefly about whether you need to get any tax advice. Of course, if you were to win significantly on the lottery, that would raise a lot of other tax considerations including planning for the family and looking at your inheritance tax position. Whilst your first action may well be to open a good bottle of champagne, it’s certainly worth giving us a call soon after, contact me by email or call me on 0113 297 6825.

Kate Naylor
Kate Naylor
Tax Partner

Kate works with businesses and their owners on tax strategies and mitigation, looking at business and personal tax structures to achieve long term goals.

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