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Bitcoin mining activities exempt from VAT after HMRC decision

4th March 2014

News just in: HMRC have announced this week that income received from Bitcoin mining activities will be outside the scope of VAT.

As a result, any charges made with regards to Bitcoin transactions or exchange for different currencies will be exempt from UK VAT (similar to bank fees).

Goods sold in exchange for Bitcoins will have VAT due in the normal way, with the value calculated as the sterling value of the cryptocurrency at the point of transaction.

Avid readers of this blog will be aware this follows our previous post regarding the tax treatment of Bitcoins and other cryptocurrencies.

Cryptocurrency: Corporation Tax, Income Tax or Capital Gains Tax?

The treatment of cryptocurrency with regards to the above taxes will be determined on a case-by-case basis and the relevant case law will apply.

However, as with the VAT treatment, a rule of thumb will be to treat cryptocurrencies like any other currency and use some common sense.

Corporation Tax

  • The general rules on foreign exchange relationships apply – profits or losses on exchange movements between currencies are taxable
  • For transactions involving cryptocurrency (received in exchange for goods or services) this would be reflected in the profit / loss of the company (as you would expect from the VAT rules above)

Income Tax

  • As above for non-incorporated businesses

Capital Gains Tax

  • If the profit or loss doesn’t fall under the trading or a loan relationship it will normally be taxable as a chargeable gain (or allowable as a loss)

Future tax implications for the trading of Bitcoins

Given the relatively recent advent of Bitcoins and other cryptocurrencies, HMRC have advised the determination ‘of their legal and regulatory status is ongoing’.

They will issue further guidance as appropriate so watch this space – or give us a call if you’d like any help or advice.