Cyber money and tax consequences

Recently HMRC has issued a statement regarding the tax implications of using digital currency like Bitcoin, as a result of its increasing popularity.

Bitcoin is the world’s first decentralised digital currency which operates via a peer to peer network, independent of any central authority or bank.  It can be held as an investment or be used like any other currency in the world to pay for goods and services (where the merchant accepts it).  In the UK, there are already a number of places, including pubs, restaurants and internet retailers that accept payment by Bitcoin.

HMRC has announced it will treat Bitcoins in the same way as it would currencies other than sterling.  The following are some of the tax consequences:

  • VAT
    • Buying and selling Bitcoins, like other currencies, is VAT exempt.
    • Exchanging Bitcoins for other currencies – no VAT will be due on the value of the Bitcoins themselves.
    • Supplying goods and services in exchange for Bitcoin – VAT will be due as normal. The value of the supply of goods or services on which VAT is due will be the sterling value of the Bitcoin (or any other digital currency) at the point the transaction takes place.
  • Corporation Tax
    • 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.
    • Profit or losses on exchange movements will be taxable.
  • Income Tax
    • The profits and losses of a non-incorporated business on Bitcoin transactions must be reflected in the accounts and will be taxable on normal income tax rules.
  • Capital Gains Tax
    • Gains and losses incurred on Bitcoin or other digital currencies are chargeable or allowable for Capital Gains Tax.
    • Total gains up to the annual exemption of £11,000 for 2014/2015 will be tax free.

Given the evolutionary nature of these cyber currencies, HMRC will no doubt be issuing further guidance!

Talk to Barnes Roffe today
Share this page:
Contact Us
ICAEW The Chartered Institute of Taxation ACCA IPG IR