HM Revenue and Customs Brief 09/14 - Bitcoin
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Issued 3 March 2014
Tax treatment of activities involving Bitcoin and other
Purpose of this Brief
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
- Bitcoin miners
- Bitcoin traders
- Bitcoin exchanges
- Bitcoin payment processers
- Other Bitcoin service providers
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
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.
VAT treatment of Bitcoin and similar cryptocurrencies
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
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:
- 1.Income received from Bitcoin mining activities will
generally be outside the scope of VAT on the basis that the activity
does not constitute an economic activity for VAT purposes because there
is an insufficient link between any services provided and any
- 2.Income received by miners for other activities, such as
for the provision of services in connection with the verification of
specific transactions for which specific charges are made, will be
exempt from VAT under Article 135(1)(d) of the EU VAT Directive as
falling within the definition of 'transactions, including negotiation,
concerning deposit and current accounts, payments, transfers, debts,
cheques and other negotiable instruments.'
- 3. When Bitcoin is exchanged for Sterling or for foreign
currencies, such as Euros or Dollars, no VAT will be due on the value
of the Bitcoins themselves.
- 4. Charges (in whatever form) made over and above the
value of the Bitcoin for arranging or carrying out any transactions in
Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at
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
Corporation Tax, Income Tax and Capital Gains Tax treatment
of Bitcoin and similar cryptocurrencies
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 involved.
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
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.
- Corporation Tax: The profits
or losses on exchange movements between currencies are taxable. For the
tax treatment of virtual currencies, the general rules on foreign
exchange and loan relationships apply. We have not at this stage
identified any need to consider bespoke rules.
For companies, exchange movements are determined between the company’s
functional currency (usually the currency in which the accounts are
prepared) and the other currency in question. If there is an exchange
rate between Bitcoin and the functional currency then this analysis
applies. Therefore no special tax rules for Bitcoin transactions are
required. The profits and losses of a company entering into
transactions involving Bitcoin would be reflected in accounts and
taxable under normal Corporation Tax rules.
- Income Tax: The profits and
losses of a non-incorporated business on Bitcoin transactions must be
reflected in their accounts and will be taxable on normal income tax
- Chargeable gains - Corporation Tax and
Capital Gains Tax: If a profit or loss on a currency
contract is not within trading profits or otherwise within the loan
relationship rules, it would normally be taxable as a chargeable gain
or allowable as a loss for Corporation Tax or Capital Gains Tax
purposes. Gains and losses incurred on Bitcoin or other
cryptocurrencies are chargeable or allowable for Capital Gains Tax if
they accrue to an individual or, for Corporation Tax on chargeable
gains if they accrue to a company.
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.
About the Author
© Crown Copyright 2014.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2014-03-04 12:08:26 in Tax Articles