Head of VAT Richard Asquith follows up on his recent Bitcoin coverage.
HMRC has confirmed this week (Brief 09/14, issued 3 March 2014) that its initial tax treatment of Bitcoins as single-use vouchers did not reflect the cryptocurrency’s actual economic role as a store of wealth, exchange mechanism for goods and services or to trade for national ‘fiat’ currencies.
This means the ‘mining’ and trading of Bitcoins will now be exempt from VAT – a treatment similar to gold – and this includes exchanging Bitcoins for regular currency. Where Bitcoins are used for buying goods or services, the supplier will have to establish a fair market exchange rate for the Bitcoins in order to determine the VAT due on the supply.
Gains or losses on trading will still be subject to income tax. This could mean Capital Gains Tax for non-taxable persons, including the benefit of their annual personal allowance, or Corporation Tax for companies.
This new regime represents probably the most tax-friendly and constructive regime in the world for Bitcoin traders, and will help attract business from other jurisdictions. This may in turn force them to bring forward tax guidance, especially from the IRS in the US.