Need to sort out your cryptocurrency tax? Well, stay with us as our experts answer your queries related to VAT treatment of cryptocurrency.
Before proceeding any further, let’s first learn some basics about the cryptocurrencies.
Cryptocurrencies including Bitcoin are decentralised digital currencies that are independent of national authorities or central banks. Furthermore, unlike traditional currencies, they don’t physically exist.
Though there is no single rule as to why cryptocurrencies have been created, the apparent reason behind this invention seems to free people from surveillance of the government and to get rid of expenses like paying to banks even for the tiniest of the transactions.
Where can you use cryptocurrencies in the UK?
You can hold cryptocurrencies as investment or you can use them to pay for services and goods at shops/stores/merchants where they are accepted.
Just like elsewhere, several outlets in the UK including restaurants, pubs, and internet retailers have started accepting payments in the cryptocurrencies.
Cryptocurrencies and VAT treatment
Up until now, the VAT treatment of cryptocurrencies including Bitcoin is as follow:
If you generate any income through Bitcoin mining activities, the VAT will not be applied on it as Bitcoin mining does not tantamount to any economic activity for VAT purposes. This is due to the fact that the link between consideration provided and services received is insufficient.
The income generated by minors through other activities will also be exempt from the VAT as these activities fall within definition of transactions including payments, debts, transfers, cheques, current accounts, and any other negotiable instrument.
If you change cryptocurrency for foreign currencies, then, you owe no VAT on value of the cryptocurrency
And the charges made over and above Bitcoin’s value for carrying out or arranging transactions in Bitcoin will also enjoy VAT exemption.
However, you will owe VAT if you supply any service or goods in exchange for any cryptocurrency including Bitcoin.
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 place.
In nutshell, trading in or activities like exchanging Bitcoing, there’s good news for you that such activities generally fall outside the VAT scope (up until now).
However, if you purchase any service or goods against Biotcoin or any other similar cryptocurrency, then such transactions will be subjected to VAT in the usual manner based on sterling value.
So, if you want to sort out VAT taxes regarding cryptocurrencies, just drop your details here in our Contact Us section and get an instant 15-Minute free call from our tax advisers. Rest will be taken care of!