HMRC, the UK tax authority, has now released official guidance on its website. The brief entitled “ Tax treatment of activities involving Bitcoin and other similar cryptocurrencies” sets out the tax status of Bitcoin in the UK. In short, Bitcoin is to be treated similar to a foreign currency for tax purposes.
The guidance comes as no surprise, discussions regarding the tax status of Bitcoin have been going on since December.
The brief covers four areas of tax: VAT, corporation tax , Income tax and capital gains tax.
Bitcoin mining is judged to fall outside the scope of VAT because it “does not constitute an economic activity for VAT purposes”. HMRC has deemed “there is an insufficient link between any services provided and any consideration received”
No VAT will be due when exchanging bitcoins into any sterling or foreign currencies. Any fees charged when transacting Bitcoin are also exempt from VAT under an existing EU directive which exempts financial transaction fees.
VAT is still due on goods and services sold using a cryptocurrency calculated by the sterling value of the cryptocurrency at the time the transaction takes place.
Corporation tax , income tax and capital gains tax will be accessed on a case by case basis however HMRC state that “the general rules on foreign exchange and loan relationships apply”.
Whilst the brief essentially makes Bitcoin a foreign currency for tax purposes it does not mean that other areas of the law recognise Bitcoin as a currency.