I'm would like to add a lottery to my upcoming community site where members aged 17 or over can play. It's a really simple system where members pay $2 or £1 to play in little games up to the value of around £200. The members could pay using PayPal and I could used a randomising program to select who the winner is each month. I would on only keep 5% of each total and the winner will get the rest using PayPal. The 5% is to pay for the site etc.
I've been advised by a few people that this would be legal as long as I pay the winner the full amount stated on the site. Would I not need a license for this as I would assume it would be classed as online betting?
I'm Guessing that you are in the UK, which means that you'll need to obtain a licence since it falls under the lotteries and gaming act. The promoter and holder of the gaming licence will need to be 18+
Even if your lottery is non profit making, you'll still need to inform the inland revenue within 3 months of starting the venture, and to keep accurate records of your income and outgoings. The when you submit a self assessment form at the end of your first year if you have not made a profit then you will not pay any tax. However you need to keep records like any business, to PROVE that you are running a non profit venture.
If you fail to notify the revenue or to keep records in order to prove your non profit status then you are liable to a large fine based on the profit that the Revenue believe that you have made!, and also a £100 penalty for failing to notify them within 3 months of starting up.
People regularly donate to sites and that is tax free income for the adiministator.
Sorry but you have been mis-informed, at least in the UK. Assuming you already earn more than about £4700 a year from some form of paid empolyment and are aged 16+ then the profit from all additional income (including donations and tips) is taxable and has to be declared from any venture unless it was a private sale of your own 2nd hand goods on Ebay for example.
However this can be off-set against tax. So for instance if your site costs you £200 a year to host and you make £200 in donations then you will not be liable for tax because you have shown no profit. However, if you take £300 in donations, then you'll be taxed on the £100 difference between your expenses and your profit. However you still need to keep records.
Sorry I'm new to this. When you say 'host' are you refering to a US based server? Would it be legal to set up a small lottery forum on my site if the host was in a place like Amsterdam? How would someone get a licence for such a venture?
EDIT: Sorry Chris, I missed your post,
How would I go about obtaining a license for my idea? Could you point me in the right direction?
I believe that as the legal registered promoter, you will also be liable to register and comply with the laws in your own jurisdiction. I would guess that the laws in the country where the server was hosted would also apply - so technically you'd have two countries laws to comply with.
we have turnkey websites and lottery portal happends to be one of them.and from what i gather it is not illegal to run a such site. allthough there are terms.its kinda like running a porn site you have to make sure they are over 18 years of age blablabla. i did have a link where it gives you all the info.if i can find it i will post it here for you