Prize Competition vs Lottery vs Raffle: The UK Rules Explained
UK law does not care what you call your promotion. It cares how it works. A "giveaway" can be a lottery, a "competition" can be a lottery, and a "raffle" almost always is one. The label you choose has no legal weight at all.
The good news is that the rules come down to two questions. Does skill decide the result, and does entry require payment? Answer those and the category falls out, along with whether you need a Gambling Commission licence.
Get the category wrong and you are running an unlicensed lottery. That is a criminal offence, and it makes the business unbankable. This article sets out each category, the skill test, the free entry route, and what happens if you misread it.
Not sure which category your promotion falls into? Tell us about your business and we will sanity-check the classification before you launch or build anything. Speak to a specialist.
Prize competition, free draw, lottery and raffle: the difference
Four terms get used loosely, but UK law recognises three mechanisms: skill, a free entry route, and paid chance. Everything follows from which one you are using.
| Category | How you enter | How the result is decided | Licence needed? |
|---|---|---|---|
| Prize competition | Paid or free | Genuine skill, judgement or knowledge | No, if the skill is real |
| Free draw | Paid route plus a genuine free route | Chance | No, if the free route is genuine and equal |
| Lottery | Paid only | Pure chance | Yes. Cannot be run for commercial gain |
| Raffle | Paid only | Pure chance | Yes. A raffle is a lottery in law |
The dividing line is simple. If a paid entrant wins by chance and there is no free route, you are in lottery territory. Skill or a genuine free route is what moves you out of it.
In practice, almost every commercial operator runs either a skill-based prize competition or a free-draw structure, because those are the only two routes a for-profit business can lawfully use. A raffle or lottery is reserved for licensed charities and societies.
The word that catches people out is "raffle". It sounds informal and harmless, but the Gambling Commission treats a raffle as a lottery: paid entry, winners by chance, no skill and no free route. The National Lottery is the obvious example of the category, and a paid prize raffle sits in exactly the same legal bucket.
Two variables decide everything in that table: whether entry costs money, and whether chance or skill picks the result. A free promotion is rarely a problem. The risk lives in the combination of paid entry and pure chance, because that is the legal definition of a lottery.
The skill test: what counts as genuine skill
If you charge to enter and rely on skill to stay legal, that skill has to do real work. This is where most promotions that look like competitions actually fail.
The legal bar is specific. The skill element should either deter a significant proportion of people from entering, or prevent a significant proportion of those who enter from winning. A question everyone gets right does neither.
- Genuine skill passes. A judged creative task, a genuinely difficult question, or a tie-breaker that ranks entrants on judgement all qualify.
- Token questions fail. "What colour is the sky?" or a multiple-choice question with one obvious answer is treated as chance in disguise.
- Searchable answers fail. If the answer is the first result in a search engine, it filters nobody and does no legal work.
- The Gambling Commission has said so. Trivial skill barriers do not remove an event from lottery regulation.
Two further points trip operators up. A second-chance or tie-breaker question only helps if it does real filtering, not if it is a formality after a random shortlist. And keeping evidence matters: if your competition is ever challenged, you want records showing entrants were genuinely sorted by skill.
The most common mistake is dressing a chance-based draw up as a competition with a question almost everyone answers correctly. A common issue follows: it attracts complaints, because it reads as chance in disguise, and a regulator or an acquirer can take the same view. Getting the skill element genuinely hard matters more than making it look like a competition.
The free entry route: how a paid draw stays legal
The other lawful path for a paid promotion is the free entry route. It lets a chance-based draw take paid entries without becoming a lottery, but only if it is done properly.
- It is a legal requirement. The free route is not optional generosity. Without it, a paid random draw is an unlicensed lottery.
- It must be genuinely free. No charge above the normal rate, which in practice means standard postal entry, not a premium line or charged SMS.
- It must be equally prominent. The free route has to be promoted as clearly as the paid one, not buried in the terms.
- It must give the same chance. Free and paid entrants go into the same draw with an identical chance of winning.
One detail matters more than operators expect: the system that allocates prizes must not distinguish between free and paid entrants. If your draw quietly favours paying entrants, the free route is decorative and the protection falls away. Some platforms sidestep the issue entirely by running fully free competitions with no paid route at all.
Most businesses that take this route pair it with a skill question as well, so the promotion is defensible on both grounds. What usually trips operators up is treating the free route as a formality and hiding it, which is exactly what undermines the protection it is meant to provide.
Which ones need a Gambling Commission licence?
The licence position is the practical payoff of the classification, and it is short.
Prize competitions and free draws need no licence. Run correctly, they sit outside the Gambling Act 2005 and the Gambling Commission does not regulate them.
Lotteries and raffles need a licence or registration. They are regulated gambling and cannot be run for commercial gain. Only licensed society and charity lotteries can run them, for good causes rather than profit.
The regulator will not check your work. The Gambling Commission does not approve or design promotions for you, so the responsibility for getting it right is entirely yours.
This article keeps licensing at a summary level. For the detailed position and the exact wording the regulator uses, see our dedicated guide on whether you need a licence to run a prize competition or raffle in the UK.
What happens if you get the classification wrong
Misclassification is not a technicality. Calling a chance-based paid draw a "competition" does not change what it legally is, and the consequences are real.
- It is a criminal offence. Running an unlicensed lottery breaches the Gambling Act 2005.
- The business becomes unbankable. Banks and payment providers treat an unlicensed lottery as a reason to decline or close accounts, often with funds held.
- The label offers no protection. If entry is paid and the result is chance, it is a lottery regardless of what your marketing calls it.
- Complaints escalate it. A token skill question invites disputes, and disputes are what bring the structure under scrutiny.
What usually happens is that the problem stays invisible until money starts moving. The structure looks fine on the website, then a payment review or a complaint exposes the weak skill question or the missing free route at the worst possible moment.
The damage also follows you. A closure for running an unlicensed lottery can land the business on industry watch-lists that other acquirers check, so a single misclassified promotion can make the next application harder. For a marketing giveaway, the cleanest answer is usually a genuinely free prize draw, which keeps you out of lottery territory without relying on a skill question at all.
If there is any doubt about how your promotion is classified, it is worth checking before you take a single payment. We can review the structure and help you get it right. Tell us about your business.
Charity raffles and society lotteries
Most everyday "raffles" people picture are charity raffles, and those follow a different, licensed route. It is worth separating them from the commercial model.
A charity raffle or society lottery is a lottery in law, run under a registered or licensed framework for a good cause. The split is by size. Small society lotteries register with the local authority and stay under set sales limits; larger ones need a Gambling Commission licence.
The defining feature is where the money goes. A society lottery has to return a minimum proportion of proceeds to the good cause rather than to an individual or a company. That is the line a commercial business cannot cross, and it is why "running a raffle for our business" is not an option.
This is the opposite of a commercial prize competition, which exists to make a profit and therefore cannot use the lottery route at all. If your aim is profit, the charity-lottery path is closed to you, and you are back to skill or a free entry route.
The Voluntary Code and player protections
Beyond the gambling rules, prize draw operators now have a voluntary standard to meet. The Department for Culture, Media and Sport introduced a Voluntary Code of Good Practice for Prize Draw Operators, in force from 2026.
The Code focuses on three things: player protection, transparency and accountability. Operators who sign up commit to clear rules on how each draw runs, honest communication, and proper conduct. DCMS oversees it, and signatories agreed to implement it in full within months of publication.
It is voluntary, but treat it as the direction of travel. Where a sector adopts a code under government oversight, the practices in it tend to become the baseline that partners, platforms and payment providers expect to see, whether or not you have formally signed.
Age limits differ by category. Lotteries and raffles cannot be sold to under-16s, while the Voluntary Code expects prize draws to be restricted to ages 18 and over. Build the right age gate into your terms and your checkout.
Advertising rules you still have to meet
Sitting outside the Gambling Act does not give you a free pass on advertising. Two sets of rules still bite.
The CAP Code and the ASA. Stated odds, closing dates and prize delivery must be honest. Misleading prize promotion is an advertising-standards problem even when the structure is lawful.
Meta requires RMG approval. Facebook and Instagram restrict competition advertising, and you generally need Real Money Gaming approval to run ads, often supported by a legal opinion that the promotion is lawful. RaffleLabs runs an RMG licensing service that handles this approval for operators, which removes a step many people discover too late.
Great Britain and Northern Ireland: a key difference
Almost every guide to this topic quietly assumes the whole UK works the same way. It does not, and this is a detail worth getting right.
The Gambling Act 2005 framework, the prize competition and free draw rules included, applies to Great Britain. Northern Ireland operates under separate gambling legislation with its own requirements.
If you market a promotion as UK-wide, you either check the Northern Ireland position specifically or exclude Northern Ireland in your eligibility terms. Assuming GB rules cover the whole UK is a quiet way to create a compliance gap.
Once it's a lawful paid competition: payments and approval
Classifying your promotion correctly is step one. The moment you take paid entries, you meet the next reality: the payments industry treats a competition business as high-risk, which is a compliance and account-stability matter as much as a legal one.
Mainstream processors decline the sector. Stripe, PayPal and similar providers exclude competition and prize-draw accounts, and a business bank account can be just as hard to open. Getting approved means specialist underwriting rather than instant onboarding.
Approval is earned, not assumed. Specialist acquirers underwrite the model carefully, and the required documents include compliant terms, a visible free entry route, company and ID details, and any trading history.
Rejection has common causes. A weak or hidden free entry route, a token skill question, vague terms, or undisclosed prior closures are the usual reasons applications fail. A clean classification and chargeback controls in place from day one improve your approval odds.
| Factor | Mainstream processor (Stripe, PayPal) | Specialist high-risk account |
|---|---|---|
| Acceptance | Competition accounts excluded or closed on review | Underwrites competitions deliberately |
| Stability | Sudden shutdowns and frozen funds are common | Built for the risk, so far more durable |
| Reserves and chargebacks | No sector support; abrupt holds | Reserves set up front, with chargeback tooling |
Account stability is the part operators underestimate. High-risk accounts carry reserves, chargeback exposure and the risk of frozen funds or termination if disputes climb. Planning for that matters more than chasing the lowest rate.
This is advisor territory, and it is where Merchant Advice works as a broker. Once your structure is sound, see our guide on how to start a prize competition business in the UK, or go straight to specialist payment gateways for competition and raffle websites.
Conclusion
The taxonomy is less complicated than it first looks. Skill makes it a competition. A genuine free entry route makes a paid draw lawful. Paid entry plus pure chance makes it a lottery, which a commercial business cannot run.
Everything else, the licence position, the advertising rules, even whether you can get paid, follows from that one classification. Get it right first and the rest is manageable. Get it wrong and you are running an unlicensed lottery without realising it.
If you are not completely sure which category your promotion sits in, that is worth resolving before any money changes hands. Tell us about your business and we will help you check the structure and get payments in place. Speak to a specialist for free, no-obligation advice.
