Prize Draws
- A prize draw is where winners are chosen at random.
- You can run a prize draw for your business, but it must be free to enter or offer a genuinely free entry route (for example, by post at normal postage rates).
- If you charge for entry, or make people buy something to enter, you must not inflate the price to cover the cost of the prize, or it will not be considered free.
Competitions
- A competition is where winners are chosen based on skill, knowledge, or judgement (not just luck).
- The skill element must be real, so if the question is too easy, it might not count as a genuine competition.
Lotteries
- Lotteries are strictly regulated under the Gambling Act 2005 and cannot be run for commercial gain without a licence. As such, you need to be careful not to deliberately or inadvertently create one.
- If your draw isn’t genuinely free to enter, or if there’s no real skill involved and people have to pay, it could be classed as a lottery. If it’s a genuine competition, because there is skill involved, then this is not a lottery.
Do You Need a Licence?
- You do not need a licence for a free prize draw or a genuine skill-based competition.
- If your promotion doesn’t meet these requirements, you may need a lottery licence, which is not available for most businesses.
- You do not need a licence from your local authority to run a free prize draw or a genuine skill-based competition for commercial purposes. However, if your promotion is classed as a lottery you may need to register with your local authority as a “small society lottery”. However, this is only available for non-commercial, charitable, or good cause purposes.. For further details, see the Gambling Commission’s guidance.
You can use the precedent Prize Draw – Terms and Conditions document on the FSB Business and Legal Hub as a template for your own promotions. It covers the key legal requirements and will help you set up your terms and conditions correctly, and you can adapt it to your specific promotion.
The New DCMS Voluntary Code for Prize Draw Operators
On 20 November 2025, the Department for Culture, Media and Sport (DCMS) published a voluntary code of good practice for businesses running prize draws (including competitions).
The code applies to prize draws that are decided by chance (like a lottery) but offer a free entry route as well as a paid one. These do not need a licence under the Gambling Act 2005. The code does not apply to competitions based only on skill.
The code sets out good practice in three areas: player protection, transparency, and accountability. Key points include:
- Only allow players aged 18 or over. Don’t target under-18s in your advertising.
- Don’t accept credit card payments over £250 per month per player. No credit card entries at all for instant-win competitions.
- Set sensible monthly spend limits, or let players set their own.
- Allow players to suspend or close their accounts. Suspensions must last at least six months, and you must not send marketing during this time.
- Make sure free entry routes are clearly publicised and easy to access.
- Monitor player activity for signs of harm, and take action if needed. Signpost support for those at risk.
The code is voluntary, so you don’t have to follow it by law for the time being. However, more than 20 prize draw operators have already signed up, and the DCMS expects full implementation by 20 May 2026.
Why Should You Follow the Code?
- Following the code shows your business is responsible and cares about customers.
- It helps protect players from harm and builds trust in your brand.
- If the code isn’t widely followed, the government may introduce new laws to make these standards compulsory.
Even though the code is voluntary, not following good practice could lead to negative publicity or loss of customer trust which could affect your business. If you breach existing laws (for example, by running an illegal lottery), you could face enforcement action, fines, or even criminal penalties.
Practical Steps for Small Businesses
- Where appropriate, use our terms and conditions template to set up your prize draw or competition.
- Make sure your promotion is genuinely free to enter, or involves a real element of skill.
- If you run prize draws with both free and paid entry, consider following the DCMS code, even though it’s not yet mandatory.
- Be transparent, protect your players, and monitor for any signs of harm.
- Keep up to date with any changes in the law or new codes of practice, and if in doubt, ring the FSB Legal Helpline.