Skip to main content You are hereHome Cryptic currency Sarah Saunders The mysterious world of bitcoin Related articlesPrinter-friendly version Back to topThe UK's tax authority has scrapped plans to charge value added tax (VAT) on Bitcoin trading.In new guidance, HM Revenue & Customs also said it would not levy the 20% tax on the creation, or so-called 'mining', of the virtual currency.The move comes just days after the collapse of leading Bitcoin exchange, MtGox, and with it the loss of almost $500m (£300m) in customer deposits.HMRC said corporation and income taxes would still apply.The global market for Bitcoins, a virtual currency created, or 'mined' through complicated computer algorithms, is worth about $7 billion (£4.2bn) at current market rates.Countries and their tax authorities have been grappling with how to regulate it, with some seeing it as a route for tax evasion or money laundering.Russia has declared transactions illegal, China has banned its banks from handling Bitcoin trades, and there have been calls for the US to do the same.Singapore has imposed a tax on Bitcoin trading and using it to pay for services, after classifying it as goods, rather than a currency.However, HMRC's guidance issued on Monday, said VAT would not be levied, on the basis of EU rules that apply to currencies.It said Bitcoin trading and other activities, like charges for verifying transactions, "are exempt because they fall within the definition of 'transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments'".Bitcoin traders and supporters had been calling for HMRC to scrap its VAT plans for the currency, arguing it would make their businesses globally uncompetitive, or even unviable.But VAT will apply to suppliers of goods and services sold in exchange for Bitcoin, based on the sterling value of the virtual currency at the point of sale, HMRC said.And the profits or losses of companies using Bitcoins, and on exchange movements between currencies, will be subject to corporation tax, the government agency added.

Last month leading Bitcoin exchange, Tokyo-based MtGox, filed for bankruptcy after losing an estimated 750,000 of its customers' Bitcoins.It said there was a "high probability" the Bitcoins had been stolen.The currency has been highly volatile since its inception, and particularly in the last year.ethereum javaThe price of one Bitcoin stands at about $658, down from a peak of $1,242 in December.ethereum buy and holdThe 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).tao bitcoin addressHMRC's classification of bitcoin as a payment service comes as authorities consider the legal and regulatory status of the emerging asset.ubuntu run bitcoin server

, 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.bitcoin direct bet"One assumes that this is because of bitcoin's status as a cryptocurrency without the backing of a sovereign state and central bank.litecoin minen mit asicIt 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."bitcoin wallet iphone uk"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.bitcoin how to generate coins

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.bitcoin the end of money as we know it streamIn 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.Any profits or losses on the underlying transactions will be taxed as normal.If bitcoins are held for a period, any movement in their value will be taxed either as a profit or a loss on a currency contract, or as a capital gain," she said.