BTC tax in the UK?

[freethrow]

I was reading this thread:
https://bitcointalk.org/index.php?topic=143425.0
but it only really considers buying BTC with fiat currency and later selling to make a profit.

It has struck me that we all need to keep records of our activities in case HMRC start wanting to look in more detail at BTC related activities, so I wondered how people are accounting for the following:

- equipment purchases
- power consumption
- mined coins

If you mine coins,  then later sell them for fiat currency, is income tax payable? Are they considered to have been acquired at zero cost, so you pay income tax on the whole amount? Or at the market rate at the time of mining? The latter would be an accounting nightmare as you would need to record the market price every single time a pool adds any quantity of coin to your balance.

It seems rather unfair if we had to pay income tax on the whole amount without being able to subtract all the costs. But equipment purchases and power consumption are potentially hard to nail down, as equipment may not be used exclusively for bitcoin mining.

What records are people keeping to support any possible investigation by HMRC?

[Meekel]

I think in general it's better to keep as many records as possible if you're wanting to keep "above board" so to speak. I don't think HMRC have an official stance on Bitcoin in regards to mining specifically, and I'm not sure how much of a response you would get if you contacted them. I agree that recording market rate at the time of mining would be a logistical nightmare and even setting up some form of automation would require a bit of work.

In the long run, the more records you have will set you in good stead if HMRC eventually come knocking. It's a matter of deciding how much detail you actually go into though, specifically when it comes to mining.

[oblongmeteor]

If you're a company selling Bitcoins HMRC state that Bitcoin falls into the VAT bracket of a 'credit voucher' (https://bitcointalk.org/index.php?topic=153332.0*). If I remember correctly VAT is only payable if you; a) turn-over 79,000 (2013-2014) GBP per annum, b) are registered as a company/sole-trader and c) are selling the Bitcoins.

For the individual, they treat it like an asset (like a painting by an expensive artist) - therefore you wouldn't pay any tax unless you liquidated to fiat. In this instance it would fall under capital gains rules, so - if I recall correctly - you get the first ~9000 GBP of any gains tax free (2013-2014) and then any further gains (from Bitcoins, Shares, Currency Trading, etc etc) are subject to capital gains rate of 18-28% (see: https://www.gov.uk/capital-gains-tax/overview)

* There is a better thread on the forum where some user actually linked a screenshot of the written response from HMRC

 

[BTC4Jesus]

Render unto Caesar the things that are Caesar's, and to God the things that are God's.

Only one will accept Bitcoins.

[freethrow]

For the individual, they treat it like an asset (like a painting by an expensive artist) - therefore you wouldn't pay any tax unless you liquidated to fiat. In this instance it would fall under capital gains rules

Right, I understand that, but I see mining as like the artist creating the work in the first place, rather than a collector buying and later selling a work of art.

So lets suppose I create a work of art:

I consume some resources while making it, e.g. electricity to heat and light my studio etc = £1k value (analogous to electricity used when mining)
I use various tools to make the work of art that cost me £2k, but they are not consumed by the work and can be reused for subsequent works I create (analogous to BTC mining hardware)
Suppose that when I create it, the work of art could be sold for £10k (analogous to BTC market rate at the time of mining)
But then I decide I would rather keep it for a year, and when I sell it a year later, it is worth £20k (analogous to BTC market rate increasing between mining and selling)

I would guess that any artist doing all of the above would do it as a properly set up business with accounts. Costs would come out of the company accounts and tools would be depreciated according to accounting rules. Income tax would be paid on income drawn down. It seems like overkill if anyone mining a few coins on their home PC has to create a business to handle all the accounting.

So the question is, if you did all the above without having it all within business accounts, is there any simplified way to handle it all? Or do we all need to start depreciating our assets properly etc? Of course, if we all registered as businesses, we could reclaim the VAT on hardware purchases 

[atsoat]

My opinion only, as I've not yet sought advice. As a miner, I think you have a choice how you account for it:

1) Treat the mined BTC as income based on equivalent GBP value at the time you acquired it. Any subsequent rise in the value before you exchange the BTC for goods or GBP would be subject to capital gains tax. (e.g. you mine 1 BTC at a time when it is selling at £10, you must record that £10 as income and pay appropriate income tax. If you sell that 1 BTC at a later date, when they are worth £80, then you must record a capital gain of £70 and pay appropriate capital gains tax).

2) Treat the mined BTC as income based on the equivalent GBP value at the time you exchange the BTC for goods or GBP. (e.g. you mine 1 BTC at a time when it is selling at £10, but you sell it a later date, when they are worth £80, you must record income of £80 and pay appropriate income tax).

In either case, you should be able to offset the initial cost of the equipment and an appropriate proportion of your electricity and broadband costs against the income tax due - i.e. you pay income tax on the profit.

An advantage of option 1, is that  capital gains tax can be lower than income tax, but a disadvantage is that even if you don't actually sell the BTC, then you must still pay the tax.

I don't think you can get away with just treating it as capital gains from zero value, because that is simply not the case. The coins had a clearly derivable value at the time you acquired them, so it is like receiving a benefit in kind, or compensation, or income. Anyway, if you did try to treat it as entirely being capital gains, then I don't think you could offset the electricity/equipment costs.

[oblongmeteor]

Don't assume anything with HMRC. If you are in doubt, ring them up (there is a number on their website), or email their contact centre for an official response. Do not try and convince yourself that you can somehow get away without paying HMRC their due. Make no mistake - they are ruthless if they believe you are trying conceal earnings from them (think of them in the same band as parking ticket issuers... only dealing with money and with a number of statutory powers even the police don't get).

Moral of the story; unless you're a multimillion pound company (see: David Harnett Vodaphone deal), you will likely be in for a very unpleasant surprise if you don't get official clarity.

[kodo]

Lol I bet no one will pay BTC tax, then what will they do?

[dogie]

Lol I bet no one will pay BTC tax, then what will they do?

I know you're just spamming 100s of nonsense posts to gain posts then scam someone, but I'll answer your question anyway. They'll rape you.

Account for bitcoin transactions in the same way you would track how much money you've made from them. Need to track £ price in and out, to work out final profit in £, then declare it under self assessment. Its non VATable though.

https://bitcointalk.org/index.php?topic=153332.new#new

[freethrow]

Account for bitcoin transactions in the same way you would track how much money you've made from them. Need to track £ price in and out, to work out final profit in £, then declare it under self assessment.

I'm starting to think most people won't need to even declare it under self assessment. This year's self assessment asks two questions:
- Did you dispose of chargeable assets worth more than £42,400?
- Are your taxable gains more than £10,600?

If we assume mined coins that are sold for £ represent a capital gain of the entire value, there is therefore no need to declare them unless the total received in a year is over £10,600. At current market rates, you'd need to be mining around 0.37 BTC per day to hit that limit. Even if you exceed that limit, provided you only sell £10,600 of them per year, you still wouldn't need to provide details of any of it on your self assessment, because you'd answer 'no' to the above two questions.