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Will I pay tax on profit/gain from Bitcoin (cryptocurrency) transactions?


What is a cryptocurrency?


Cryptocurrency is a digital money and is been created to be secured and anonymous. 


It is a currency associated with the internet that uses cryptography, the process of converting legible information into an almost uncrackable code, to track purchases and transfers.


Cryptography was born out of the need for secure communication in the Second World War. It has evolved in the digital era with elements of mathematical theory and computer science to become a way to secure communications, information and money online. 


The first cryptocurrency was bitcoin, which was created in 2009 and is still the best known. There has been cryptocurrencies in the past decade and there are now more than 1,000 available on the internet. Bitcoin is now worth more than $19,000 as of December 2017.


Tax treatment of Bitcoin and similar cryptocurrencies


Corporation Tax 


The profits or losses on exchange movements between currencies are taxable.

HMRC has not yet identified any need to consider bespoke rules.


Therefore no special tax rules for Bitcoin transactions are required. The profits and losses of a company entering into transactions involving Bitcoin would be reflected in accounts and taxable under normal CT rules


Income Tax


The profits and losses of a non-incorporated business on Bitcoin transactions must be reflected in their accounts and will be taxable on normal IT rules


Chargeable gains


Corporation Tax and Capital Gain Tax - if a profit or loss on a currency contract is not within trading profits and losses, it would normally be taxable as a chargeable gain or loss for CGT purposes.


Gains and losses incurred on Bitcoin or other cryptocurrencies are chargeable or allowable for CGT if they accrue to an individual or, for CT on chargeable gains if they accrue to a company.


VAT treatment of Bitcoin and similar cryptocurrencies


The VAT treatment for cryptocurrencies adopted by the UK must be consistent with any treatment that may eventually be implemented across the EU.


Given this, the evolutionary nature of these cryptocurrencies and the legal and regulatory environments in which they currently operate, this brief outlines HMRC’s provisional VAT treatment pending further developments; in particular, in respect of the regulatory and EU VAT position. Taxpayers can rely on the VAT treatment outlined below unless and until HMRC announces any changes. Any changes will not apply retrospectively.


For VAT purposes Bitcoin and similar cryptocurrencies will be treated as follows below, this in no way reflects on how they are treated for regulatory or other purposes:

  • income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received

  • income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments’

  • when Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves

  • charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above

However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin or other similar cryptocurrency. The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place


Reference 1 : https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies


References 2 : http://www.telegraph.co.uk/technology/0/cryptocurrency/

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