HMRC Clarifies Tax Treatment Of Activities Involving Bitcoin And Other Similar Cryptocurrencies

March 4, 2014 01:20 UTC

Her Majesty’s Revenue and Custom (HMRC) is the department in the United Kingdom government that oversees the collection of taxes, similar to the Internal Revenue Service in the United States.

This brief, released 3/3/14, “sets out HMRC position on the tax treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies, specifically for Value Added Tax (VAT), Corporation Tax (CT), Income Tax (IT) and Capital Gains Tax (CGT).”  It is specifically targeted towards any individuals or businesses “making charges or otherwise receiving income, in whatever form, from activities involving Bitcoin or other cryptocurrencies.” HMRC’s change of heart is the result of concerted effort by UK Bitcoiners to seek clarification on Bitcoin taxation.

HMRC’s Prior Treatment of Bitcoin

Before Tom Robinson from BitPrice, entrepreneur Michael Parsons, Marc Warne from BittyLicious, and Eitan Jankelewitz from Sheridans met with the HMRC in early December, the United Kingdom treated Bitcoin and other cryptocurrencies as a taxable voucher.  This meant that Value Added Tax (VAT) could be owed at every transaction.  For those that aren’t familiar with English tax structure, the VAT is the UK’s 20% sales tax.  Needless to say, such tax treatment of Bitcoin would be detrimental to the development of exchanges and other necessary infrastructure.  To combat this, a group of Bitcoiners has been lobbying the HMRC for the last several months asking for clarification on tax treatment of activities involving Bitcoin.

HMRC Changes Its Mind

Sometime in January, HMRC announced that it had changed its mind about Bitcoin.  Bitcoiners around the world were excited to hear that the UK was moving to label Bitcoin as a “private currency” as opposed to a taxable voucher.  The combined efforts of UK Bitcoiners was enough to convince HMRC that pursuing a VAT on Bitcoin would effectively stifle the growing UK Bitcoin economy.

As the HMRC notes in the last paragraph of their brief:

“The tax treatments outlined in this brief are for tax purposes only. They in no way reflect on the treatment of cryptocurrencies for regulatory or other purposes.”

For many UK Bitcoiners, this tax clarification is the only green light that is needed.  Bitcoiners across the pond are left wondering when the IRS will release taxation clarifications for Bitcoin in the United States.

What HMRC’s New Brief Means For UK Bitcoiners

A short summary of what the new brief from HMRC means is provided by bitcointaxes of reddit.

VAT Exempt Items:

  1. Charges/fees relating to the arrangement of a crypto-currency transaction
  2. Crypto-currency income from all mining activities
  3. Crypto-currency transfers to fiat

Corporate Tax:

Corporation Taxes on crypto-currencies have no additional special rules and will be viewed like foreign exchange and loans.

Income Tax:

Business profits from any crypto-currency related activities (buying, selling, trading) are taxed as normal income.

Capital Gains:

Capital gains or losses from crypto-currencies are only usable as capital gains for an individual, or as corporation tax for a business.

Gambling Gains:

Gambling Gains are specifically not taxable, and losses cannot be offset against other reported gains.

Businesses must still declare their crypto-currency holdings as part of year end accounts, as they do with other foreign currencies such as the USD or EUR.  All in all, this is a gigantic step forward for the peaceful coexistence of governments and Bitcoin.  HMRC’s guidance on Bitcoin and similar cryptocurrencies needs to be emulated by the likes of the IRS, and soon.

Last modified: October 16, 2019 13:12 UTC

Show comments