UK tax in relation to bitcoin

[nwbitcoin]

The discussion clearly shows the large grey space Bitcoin exists in, within the context of HMRC currently, what ever way you shake it.

Consider their stance for a minute. All of a sudden, they are getting inquires about this new-fangled crypto bit thingamajig somefingorother. They will make initial judgements based on their existing framework, and tables, flow diagrams etc. Without doubt, an invitation to produce whatever result you wish, depending on who you speak to. So what if you tried to escalate your inquiry to the decision makers? Are they going to commit to a defined process concerning the treatment of bitcoin for income/tax/CGT etc? And are they going to do that soon? Cant see it yet, personally.

So is not up to businesses that have bitcoin at the core of their trade, to decide how they declare bitcoin on their EOY accounts. Moreover, wouldnt it be logical for HMRC to sit back, wait to see how businesses declare bitcoin, monitor and number crunch its effect and consequence etc etc, and over time, take a defined stance?

Point being, its too soon to specifically define its tax route. How many returns in the last tax year shows a meaningful declaration of £BTC? Hardly any i would have thought?? So for now, its up to us/business to take their choice of the current recognized route i.e. if its 'money', its VAT exempt, but more costs associated with FSA issues, if its a commodity, it attracts VAT, and how income tax, can or cant be off-set, etc etc.
Basically, take your choice. Not ideal i know, but at least you are declaring something, and if and when HMRC want to argue your returns, they are then, setting the precedent. 

 

Totally agree.

Plus I would add that the advice that you get from any agency isn't foolproof.  If they say one thing, it doesn't mean someone else from the same agency won't say something completely different!
Don't think you can use your quote as the 'Word of God' because until there is a law or at least a legal presidence, its all opinion!

I learnt the hard way with a 6 month bounce around the houses when I found an issue relating to a vehicle construction law that no government agency would define but others were happy to enforce without definition!

[Jobe7]

In my experience - if you're not sure that what an 'official', tax man or otherwise is actually really true and in law, then tell them to point it out in black and white.

There is a LOT of corruption in the UK, and a LOT of stuff that banks and tax people and bailiffs and police do are NOT actually legal.

And most of the time, it's not even their fault .. they're just doing what they get told to do, even if its against the law. I've forgotten the experiment now.. how people blindly obey obedience if it comes from a figure of authority.

I don't blame them, I blame the people who are telling them and the system. But I DO blame them when you point out the law, or ask them to point it out, and they start going "lalalalalala, you must OBEY ME OR YOU WILL BE LOCKED UP AND YOUR FAMILY WILL STARVE!"

"Ignore the law.. nothing to see there.. move along"

[OpenYourEyes]

Can someone clarify the points here, sorry I've had to deal very little with tax as my wages are paid using PAYG so it is taken from me every month.
Starting from early March until last week I sold off the majority of my coins which gained me around £5000.

Am I liable to pay any sort of tax on this?
As my bank account has had numerous deposits go in from the sale of Bitcoins, I don't want to some how be reported for avoiding tax

Thanks.

[Hawker]

Can someone clarify the points here, sorry I've had to deal very little with tax as my wages are paid using PAYG so it is taken from me every month.
Starting from early March until last week I sold off the majority of my coins which gained me around £5000.

Am I liable to pay any sort of tax on this?
As my bank account has had numerous deposits go in from the sale of Bitcoins, I don't want to some how be reported for avoiding tax

Thanks.

http://www.hmrc.gov.uk/rates/cgt.htm#1

No tax due as you didn't make enough money.  Also if you started in March, your £5000 gain is spread over 2 tax years so should be pro-rata taxed if you get to a total gain over £10600 in this tax year.

[OpenYourEyes]

Ok, thanks. Is the money I earn from work (a measly £4500-£6000) included in this threshold with the BTC profit, or are they considered separate?

Damn my school teachers many years back for saying we don't need to learn about tax as in most cases it is automatically taken from you.

[Hawker]

Ok, thanks. Is the money I earn from work (a measly £4500-£6000) included in this threshold with the BTC profit, or are they considered separate?

Damn my school teachers many years back for saying we don't need to learn about tax as in most cases it is automatically taken from you.

No.  Work is subject to PAYE and NI and taxed at combined rates over 50% for a lot of people.  Bitcoin trading is a capital gain and subject to a much lower rate of tax; normally 18%.

And yes, it is strange that the tax on the way the rich earn money is way lower than the tax on the way the poor earn money.

In your case, all of your earned income and your speculative income is tax free.  Congratulations or something :S

[OpenYourEyes]

Ah ok.

So as long as I don't sell of my remaining coins, few as they maybe, I'm good right now and don't have to file/declare any thing to any one?
I'm quite a paranoid person fearing the tax man knocking on my door.

[Hawker]

Ah ok.

So as long as I don't sell of my remaining coins, few as they maybe, I'm good right now and don't have to file/declare any thing to any one?
I'm quite a paranoid person fearing the tax man knocking on my door.

You've nothing to worry about unless you are already filing your own tax return every year.  If you are, then do file this year as well as a consistent record prevents time consuming audits.

[davidgdg]

It is quite simple. If you trade BTC then you are liable for income tax on the profits. If you hold them for gain then you are liable for CGT at the time of disposal. Disposal for this purpose means converting the BTC into some other asset, whether fiat or anything else. Generally speaking for larger profits, the CGT liability is preferable because the rate is lower (28% versus up to 45% + NI). It is no different from trading or making capital gains from foreign currency (the only currency asset that is CGT free is the gold sovereign).

[davidgdg]

Ah ok.

So as long as I don't sell of my remaining coins, few as they maybe, I'm good right now and don't have to file/declare any thing to any one?
I'm quite a paranoid person fearing the tax man knocking on my door.

Correct. You would only be required to fill in a tax return if you sold your BTC and made a gain of more than the annual limit. If you merely hold an asset, there is no obligation whatever to tell the tax authorities.

[LargePig]

Thanks to all in this thread. Helpful to know (and read on the HMRC site) about assets, CGT and CGT allowances. Makes me feel less anxious about selling small quantities of 'mined' coinage!

[Crypto_Cumbrian]

Very Interesting post.

So how do miners sit in regards to Tax.

Lets say I mine 50 BTC a Month and Sell them 50 BTC for £50.00 Pounds each, total = £2500 pounds.

Do I pay Income Tax at my Current rate, PAYE + BTC's Sold  or Do I pay CGT at 18%.

[squish]

So how do miners sit in regards to Tax.

Lets say I mine 50 BTC a Month and Sell them 50 BTC for £50.00 Pounds each, total = £2500 pounds.

Do I pay Income Tax at my Current rate, PAYE + BTC's Sold  or Do I pay CGT at 18%.

Mining is self employment.

You should pay income tax based on the bitcoin value at the point it was mined based on that day's exchange rate.  It is then your asset.

You should then pay capital gains on the difference between that and the value you later sell it at.

Individuals have a capital gains allowance of £10,900 this financial year, so unless you are very successful or selling something else (e.g. second property) in the year you probably don't need to worry about capital gains.

[Jaymax]

I offer the following:

http://www.hmrc.gov.uk/manuals/bimmanual/bim35410.htm

I was curious about how crops are taxed.  Reading the above with bitcoins in mind, one could see how mined coins could represent the 'fructus industrialis' arising from the investment in planting the mining trees.  Of course, until there are rules, different individuals (including different experts and advisors at HMRC) will come up with different approaches when asked, but I think a case could be made that mined bitcoins are 'inventory' produced by one's 'industry', and possibly only become taxable when they are sold.

Either way HMRC gets it's fare share of the proceeds in the long-term.

It's interesting that reference to mining (for minerals) is made in the above discussion about taxing of a cherry-tree crop.  I wasn't searching for or expecting to find anything mineral-mining related.  The (very tentative) suggestion might be that bitcoin mining isn't all THAT far from mineral mining, in the sense you make a capital investment, which over time produces inventory, which you then sell for currency (income), and pay tax on receipts.

---

EDIT to add the obvious:

Business expenses paid in earned BTC were tax-free-earnings in the first place - whether the recipient declares them if appropriate is not the problem of the paying company (unless they are paying in BTC to assist the recipient in avoiding tax) - probably, there is no problem with minimising paperwork and exchange fees by paying a supplier in BTC directly from mined bitcoins (or boxes of harvested cherries), unless they are an employee.

[CYPER]

In regards to mining BTC and income tax I have a few thoughts of myself:

According to HMRC income from gambling activities is not subject to income tax.
Then I thought to myself - isn't mining just a type of gambling? - you are basically trying out your chances of finding a specific hash thought mathematical operations, right?
So if you mine some coins and then sell them, doesn't that constitute income from gambling, therefore no income tax is imposed?

Or one can take it even further - if mining is not considered gambling at what stage does the income tax come into effect? - when produced or when sold?
If it is when sold, what stops you from putting these coins in SatoshiDice and then sell the winnings for fiat currency, which in effect will mean you are not liable for tax. Obviously there is no way for HMRC to know if you really gambled everything you mined with SatoshiDice, so they will just have to take your word on it.

[CYPER]

Any comments on my thoughts? 

[Jaymax]

I think it's an interesting take, but I'm not sure I'd like to be the one explaining it to Mr Taxman when he comes a-knocking.

[solex]

Mining is not gambling. It is a business investment with a theoretically positive ROI. Would you say that Shell is into gambling because it has to gamble that when it spends $100m to drill a deep-sea well that it will find oil? Sometimes it doesn't, sometimes it is "lucky".

I suspect that the HMRC will look at the number of transactions from mining over time and determine any profits as retained income.  However, for those just sitting on a bitcoin stash which doubles in value, that would be a 1-time fx gain and not be regarded as income. Capital gains tax may apply though.

[monkeynuts]

Anyone have any thoughts regarding the tax status of selling Casascius coins .... ?

I would appreciate some wisdom here.

A coin - something you can physically hold, ie an Asset

Not really part of a set, as they are individual coins. So could be sold as a series of individual coins

Only a single coin sale of greater than £6k would have any CGT liability ?

So unless the £6k sale price of a coin is broken, then no CGT, or income tax ??#

(God I hope so !)

[digiman]

Do you have to hold on to bitcoin for over a year to it to be liable for capital gains tax ?
If under one year would I have to pay income tax ?