UPDATE (3rd February, 17:19 GMT): HMRC has now published an official brief, outlining its position on the tax treatment of income derived from bitcoin-related activities.The UK's tax agency has reversed an earlier ruling that classified virtual currencies as gift vouchers, exempting digital currency trading from a 20% value added tax (VAT).HM Revenue and Customs (HMRC), the UK's customs and tax department, has classified virtual currencies as assets or private money, not as vouchers that required a tax on the value of the coins.Tom Robinson, co-founder of London-based digital currency storage specialist Elliptic and a director of the soon-to-launch industry group U.K.Digital Currency Association, lauded the decision by the tax agency, telling CoinDesk: "I think this is the most progressive treatment of cryptocurrencies in the world.This is the most forward thinking and comprehensive advice in regards to taxation."HMRC had previously indicated it would consider rethinking its treatment of digital currency in December.

Reports say other taxes would still apply to businesses that buy, sell or exchange bitcoin.However, notably, bitcoin businesses will not be charged a tax on margins.can litecoin beat bitcoinThe news follows reports that the UK's Payments Council, the organisation that sets strategy for payments, is assessing digital currencies, and amid increasing innovation from the local community that has seen the opening of bitcoin ATM alternatives and release of physical bitcoin price tags.bitcoin redhat 6In its formal Revenue & Customs Brief, published on Monday, the HMRC pointed out that for VAT purposes bitcoin and other digital currencies will be treated as follows.ethereum target price 2017With VAT out of the way, the HMRC turned to Corporation Tax, Income Tax and Capital gains Tax.litecoin price estimate

It is important to note that there is no clear rule that applies to all activities and organisations.bitcoin set up solo miningThe brief explains: "Each case will be considered on the basis of its own individual facts and circumstances.ethereum gatewayThe relevant legislation and case law will be applied to determine the correct tax treatment.bitcoin vacation rentalTherefore, depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable."litecoin in plnBusinesses which accept payment in bitcoins will see no change in the way revenue is recognised and how taxable profits are calculated: Elliptic and other UK-based bitcoin businesses had earlier contacted the HMRC in an attempt to inspire UK lawmakers to rethink their classification of bitcoin, suggesting that the VAT would discourage UK consumers from investing in the ecosystem and make it harder for domestic companies to compete globally.litecoin price graph

The result, however, was that HMRC opened up discussions with the community.Robinson indicates that in early meetings, UK lawmakers asked questions about various digital currency activities, such as mining, though the larger focus was the overall taxation of the new currencies.The news spread quickly across the bitcoin community, with many lauding it as a validation of bitcoin at a time when the industry is in need of good news.Further, though undeniably positive, others in the community suggested that still more work needs to be done to ensure the growth of digital currencies in the UK.The news is notable as most recent regulatory statements in the wake of operational issues at the now-bankrupt Japan-based exchange Mt.Gox had been trending negative.Vietnam became the latest to speak out against bitcoin this week, citing Mt.Gox specifically, though over the last month, a slew of countries - from Hungary to Cyprus to Kazakhstan - have all issued warnings.Image credit: Value added tax visualization via Shutterstock The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.

Have breaking news or a story tip to send to our journalists?Contact us at [email protected]/* */.Skip to main content Policy paper Revenue and Customs Brief 9 (2014): Bitcoin and other cryptocurrencies From: HM Revenue & Customs Part of: Revenue and Customs Briefs and Tax agent and adviser guidance Published: 3 March 2014 HM Revenue and Customs tax treatment of income received from Bitcoin and other cryptocurrencies.Help us improve GOV.UK Don’t include personal or financial information like your National Insurance number or credit card details.

What you were doing What went wrongSkip to main content You are hereHome Cryptic currency Sarah Saunders The mysterious world of bitcoin Related articlesPrinter-friendly version Back to topThe announcement, which had been expected by the bitcoin industry following recent negotiations with HMRC, was set out in a briefing note on the wider tax treatment of so-called 'cryptocurrencies', including in relation to corporation tax and capital gains tax (CGT).HMRC's classification of bitcoin as a payment service comes as authorities consider the legal and regulatory status of the emerging asset., said that HMRC had been faced with a dilemma over whether or not to treat bitcoin as a 'currency' for tax purposes."It's interesting that HMRC has looked for VAT exemption in the legislative provisions regarding payment services and bank accounts as opposed to those concerning currency," he said."One assumes that this is because of bitcoin's status as a cryptocurrency without the backing of a sovereign state and central bank.

It may be that HMRC was concerned about putting it in the same tax basket as traditional currencies for fear of causing confusion as to its regulatory position.""The recent difficulties faced by the MtGox bitcoin exchange, which has recently filed for bankruptcy in Japan after losing an estimated 750,000 of its customers' bitcoins, show the potential risks still inherent for those trading in virtual currencies.It may also be that such issues have played on the mind of HMRC and led to thinking that VAT exemption may be useful as a control against VAT fraud: the problems of the carbon emissions trading market over the last few years has shown the susceptibility to organised VAT fraud within some new marketplaces and asset classes," he said.In its briefing note, HMRC noted that the VAT treatment adopted in the UK had to be consistent with any measures that may eventually be implemented EU-wide.It said that its position was "provisional pending further developments", but that any changes introduced at EU level or by regulators would not be applied retrospectively.

Bitcoin is a digital asset with monetary value, but it is not currently recognised as an official currency anywhere in the world.Some retailers accept payment by bitcoin for goods and services but most traders, especially in the EU, have not yet put systems in place to accept them in transactions.Virtual currencies are not currently regulated anywhere in the EU; however, the European Banking Authority (EBA) plans to appoint a taskforce to advise it on whether they should be.HMRC has taken the view that the creation, or 'mining', of bitcoin will generally be outside the scope of VAT as it "does not constitute an economic activity for VAT purposes".Income received by those mining the currency for related activities, such as the provision of services in connection with the verification of specific transactions for which specific charges are made will fall within the payment services exemption.VAT will not be due on the value of bitcoins exchanged for sterling or foreign currencies, and any transaction charges will be exempt from VAT, according to the note.

VAT will, however, be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other cryptocurrencies.The value of the supply on which VAT is due will be the sterling value of the cryptocurrency at the point that the transaction takes place.Although HMRC's policy avoided the "currency question", VAT expert Darren Melllor-Clark said that the payment services exemption relied on by HMRC could create its own set of problems."HMRC will need to be alert to claims, by traditional currency operators, of unfair or excessively favourable treatment being granted to this emerging alternative sector," he said."In particular, recent case law developments have narrowed the scope of the VAT exemption for those offering transaction services in relation to established currencies.If bitcoin traders enjoy exemption where the established sector does not, there may well be cries of foul.""Businesses would be well served to note that the HMRC brief is very clear that these arrangements are provisional and subject to changes as the bitcoin position evolves," he added.

In relation to corporation tax, income tax and capital gains tax, HMRC said that whether these taxes would apply to activities involving cryptocurrencies would depend on the activities and the parties involved.Although in many cases the normal rules would apply, HMRC said that in some cases a transaction "may be so highly speculative that it is not taxable or any losses relievable", under the same rules that apply to gambling wins and losses."Given the volatility of bitcoin, it is not surprising that HMRC sees these transactions as potentially so speculative that they are akin to gambling and so outside the tax net altogether," said corporate tax expert Heather Self of Pinsent Masons."It is more likely that HMRC will run this argument where taxpayers are trying to get relief for large losses, rather than where they have made huge gains.""For businesses which use bitcoins to make or receive payment for goods or services, the normal 'forex' rules will apply so that the value of the bitcoins will be translated into sterling on the date of the transaction.