2014-01-17 IBTimes - HMRC to Re-Classify Bitcoin as Private Money

[mtnminer]

http://www.ibtimes.co.uk/hmrc-re-classify-bitcoin-private-money-1432718

HMRC is set to change its stance on the classification and taxation of bitcoin and other virtual currencies in the UK as soon as February.

Having spoken to a number of UK businesses who use bitcoin, HMRC is expected to change its classification of bitcoin from a tradable voucher to a private currency, eliminating uncertainties over capital gains tax and producing a reduced VAT, or sales tax, liability.

Experts say the move will give Britain's bitcoin industry "a significant competitive advantage" over that of countries like China and the US, who have a less welcoming view of the currency.
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According to Richard Asquith, head of tax at investment advisers TMF Global, the reclassification of bitcoin to a private currency would mean owners would not be liable for capital gains tax, and although VAT would still apply, it would only be incurred when trading on an exchange, not when buying goods.

The move would bring Britain in line with Singapore and Germany, who both classify bitcoin as a private currency.

Doing away with double taxation

Explaining how bitcoin is currently treated as a voucher in the UK, Asquith told Coindesk: "If you went to Marks and Spencer for example, and bought one of their gift vouchers, you pay 20% VAT on that. When the voucher is used, the buyer has to pay 20% VAT on what they've bought. So vouchers are a form of double taxation."

Tom Robinson of Elliptic Vault, the world's first insured bitcoin storage company, told Coindesk he has met with HMRC to discuss taxation issues and knows of at least one individual who has been informed by the tax authority that it has withdrawn its previous advice that bitcoins are vouchers.

HMRC's official stance is that it is continuing to meet with the bitcoin community before implementing any change.

Bitcoin exchanges to open and flourish

Asquith said: "Whilst Europe dithers on the tax status of virtual currencies, there is an opportunity for the UK to clarify the tax risks and enable exchanges to open and flourish."

Despite the US Senate investigating bitcoin for some time, the country is yet to explain how the currency will be classified and regulated there.

"The US' Internal Revenue Service has not yet issued any guidance on its tax treatment for digital currencies, but the explosive growth of the currency, and therefore rising tax avoidance risks, will probably force some initial regulation early this year," Asquith added.

To report problems or to leave feedback about this article, e-mail: a.charlton@ibtimes.co.uk
To contact the editor, e-mail: editor@ibtimes.co.uk

[Denton]

According to Richard Asquith, head of tax at investment advisers TMF Global, the reclassification of bitcoin to a private currency would mean owners would not be liable for capital gains tax, and although VAT would still apply, it would only be incurred when trading on an exchange, not when buying goods.

This means that UK citizens who buy bitcoins on a foreign exchange can use them legally tax-free? How would they apply VAT on domestic exchanges where users trade with each other, does that mean that an UK exchange would have to charge a 20% fee on every transaction?

[LiteCoinGuy]

yep, really great news. one of the biggest financial areas in the world welcomes BTC 

also posted here:

https://bitcointalk.org/index.php?topic=419206.0

[dave111223]

According to Richard Asquith, head of tax at investment advisers TMF Global, the reclassification of bitcoin to a private currency would mean owners would not be liable for capital gains tax, and although VAT would still apply, it would only be incurred when trading on an exchange, not when buying goods.

This means that UK citizens who buy bitcoins on a foreign exchange can use them legally tax-free? How would they apply VAT on domestic exchanges where users trade with each other, does that mean that an UK exchange would have to charge a 20% fee on every transaction?

Yay no capital gains tax....

Just pay a 20% VAT all on trades instead 

So a 40% spread on OTC UK exchangers, just to pay the tax...  sounds great.

[Bitcopia]

According to Richard Asquith, head of tax at investment advisers TMF Global, the reclassification of bitcoin to a private currency would mean owners would not be liable for capital gains tax, and although VAT would still apply, it would only be incurred when trading on an exchange, not when buying goods.

This means that UK citizens who buy bitcoins on a foreign exchange can use them legally tax-free? How would they apply VAT on domestic exchanges where users trade with each other, does that mean that an UK exchange would have to charge a 20% fee on every transaction?

Yay no capital gains tax....

Just pay a 20% VAT all on trades instead  

So a 40% spread on OTC UK exchangers, just to pay the tax...  sounds great.

Not 100% sure, but I believe VAT tax is paid only on gains. If not, this would just be absurd.

EDIT: It looks like the 20% tax is charged to the exchange on the trading fees they collect.

[Denton]

From the coindesk article

Value-added tax is still charged, but only on fees incurred by trading on an exchange, Asquith said.

Really good news!

[zeroday]

VAT is sales tax. Does that mean that every bitcoin bought in UK is 20% more expensive than one bought abroad ?

[Denton]

VAT is sales tax. Does that mean that every bitcoin bought in UK is 20% more expensive than one bought abroad ?

According to the coindesk article VAT is only applied on the trading fees themselves.

[Mk2vr6]

This is very good news! Need some more positive bitcoin news in the UK media for more national adoption...

Lets get it widespread.

[xDan]

then bitcoin holders would not be liable for capital gains tax.

I-is this for real?!

Does this mean any UK citizen can cash out to £ without paying any form of tax?

It seems a bit unlikely...

[davidgdg]

then bitcoin holders would not be liable for capital gains tax.

I-is this for real?!

Does this mean any UK citizen can cash out to £ without paying any form of tax?

It seems a bit unlikely...

it seems a bit unlikely because it is wrong. The original article quotes Asquith as saying that no CGT will apply. Well either Asquith doesn't know what he is talking about or (far more likely) he has been misquoted. CGT is payable in the UK on gains from currency, just as with most other assets. The benefit of categorising XBT as a currency is to eliminate VAT. But it has no effect on CGT.

[Lethn]

HOLY SHIT! THANK YOU FOR POSTING THIS!

Edit: I think I'm still going to call HMRC just to be on the safe side

[e521]

This is a very good news indeed.
If bitcoin is capital gains tax except even better

[TheButterZone]

Get it in writing, under HMRC's official letterhead.

[Grinder]

Explaining how bitcoin is currently treated as a voucher in the UK, Asquith told Coindesk: "If you went to Marks and Spencer for example, and bought one of their gift vouchers, you pay 20% VAT on that. When the voucher is used, the buyer has to pay 20% VAT on what they've bought. So vouchers are a form of double taxation."

I thought this sounded very strange, and indeed it's wrong: http://www.hmrc.gov.uk/vat/managing/charging/discounts-etc.htm#4

There is no VAT on vouchers, only on the goods they are used for.