This brief sets out HM Revenue & Customs (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).
Anyone making charges or otherwise receiving income, in whatever form,
from activities involving Bitcoin (or other cryptocurrencies), including:
Bitcoin is seen as the world's first decentralised digital currency,
otherwise known as a 'cryptocurrency'. The advent of cryptocurrencies
such as Bitcoin is a new and evolving area and determining their legal
and regulatory status is ongoing. Cryptocurrencies have a unique identity
and cannot therefore be directly compared to any other form of investment
activity or payment mechanism.
HMRC understands that Bitcoin operates via a peer to peer network, independent of any central authority or bank. All functions such as issue, transaction processing and verification are managed collectively by this network. All Bitcoin transactions are recorded in a shared public database called a 'block-chain'. New Bitcoin is produced when a new block is attached to the chain. A new block can only be added to the chain when the answer to a complex cryptographic algorithm is solved. Participants in this activity are known as ‘miners’.
As well as mining, activities include the buying and selling of Bitcoin and providing exchange facilities for parties to trade Bitcoin with recognised currencies. Bitcoin may be held as an investment or used to pay for goods or services at merchants where it is accepted. In the UK, there are already a number of outlets, including pubs, restaurants and internet retailers, that accept payment by Bitcoin.
As an EU tax, 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:
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
As with any other activity, whether the treatment of income received
from, and charges made in connection with, activities involving Bitcoin
and other similar cryptocurrencies will be subject to Corporation Tax,
Income Tax or Capital Gains Tax depends on the activities and the parties
Whether any profit or gain is chargeable or any loss is allowable will be looked at on a case-by-case basis taking into account the specific facts. Each case will be considered on the basis of its own individual facts and circumstances. The relevant legislation and case law will be applied to determine the correct tax treatment. Therefore, depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable.. For example gambling or betting wins are not taxable and gambling losses cannot be offset against other taxable profits.
For businesses which accept payment for goods or services in Bitcoin there is no change to when revenue is recognised or how taxable profits are calculated.
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.
Given the evolutionary nature of these cryptocurrencies, HMRC will issue further guidance as appropriate.
Issued 3 March 2014