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UK Bitcoin VAT exemption but liable to Capital Gains Tax or Corp Tax

  • Mar 3, 2014 | Richard Asquith

UK Bitcoin VAT exemption but liable to Capital Gains Tax or Corp Tax

It is anticipated that the UK's HMRC will announce that online crypto currencies such as Bitcoin will be reclassfied next week from a single use voucher to private currency for VAT purposes.  This would exempt it from the 20% UK VAT net on each sale or profit margins, although exchange commissions would remain liable.

UK reverses tax position on Bitcoins

HMRC originally provided guidance in November 2013 that Bitcoins were single use vouchers liable to full 20% VAT on each transaction.  This treatment was based on the European Court of Justices' interpretation of the use of vouchers in the Lebara telephone voucher 2012 case.

However, this view sparked widespread critisim from the UK Bitcoin industry which claimed it would drive the business to regimes with more friendly tax stances such as the Netherlands or Germany.

Following many consultations over the pass few months, HMRC has now confirmed last week that it will issue fresh guidance in March that virtual currencies will be exempted from VAT.  This will help establish the UK as potentially the most attractive location for small global Bitcoin dealers.  However, they will certainly have to pay Capital Gains Tax above their annual personal threshold of £10,900 for the tax year 2013-14.

The change will have limited impact for medium or large dealers since they would already be VAT registered so would  have been able to recover any VAT they were charged.  They will remain subject to Corporation Tax on gains.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.