How much do you know about Bitcoins? If you have been keeping up with the news you may know a Bitcoin exchange – one of the biggest of its kind in the world – has recently collapsed. Hundreds of millions of pounds worth of investments went down with it, leaving many customers out of pocket.
However there has been some good news announced recently courtesy of HM Revenue and Customs. It has decided that VAT will not be added when mining the currency. Bitcoins cannot be created en masse; instead they are mined by computers. This is a very complex process but suffice to say HMRC originally intended to charge the usual 20% VAT on the creation of the currency.
The approach HMRC has taken has surprised many. It comes as good news for those with businesses in the sector, but other countries have taken a very stern stance on the situation. It is illegal to perform Bitcoin transactions at all in Russia, so the issue of tax never comes up at all. Those in America are also considering the way forward with the currency. Clearly the use of a virtual currency has led many lawmakers and professional organisations to consider how best to handle the Bitcoin.
It is worth noting though that Bitcoin is not completely immune to tax in the UK. Indeed, if businesses sell things and receive Bitcoins in payment for them, VAT will apply to the sale just as it would if ‘real’ currency was accepted as payment. HMRC will use the equivalent value in sterling of Bitcoins to calculate the amount of VAT relevant to the situation.
This is a welcome piece of news for those who are supportive of holding and using Bitcoins. The demise of MtGox, the biggest exchange in the world for Bitcoins, has led many to look questioningly at this virtual currency. Those in charge of the exchange think the coins may have been stolen, but since they exist in a virtual sense how can anyone tell?
At least the situation with HMRC has been clarified. Those who are keen to continue mining and trading the currency now know there is no VAT to worry about in this situation. Some say it has saved small businesses focused on this area, so this surely has to be a good thing. It will however be interesting to see how other countries react to the more laid back position of the UK in this respect. Some are extremely wary of the currency and its classification as a form of goods, a currency or a voucher. We will be keeping a close eye on the situation as it progresses.