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Bitcoin and similar cryptocurrencies have become an increasingly prominent and popular form of digital asset for businesses over the last few years, but inevitably, the emergence of this new model of finance has created ambiguity about how trade involving these assets will be regulated.

For those involved in cryptocurrency transactions, finding out how VAT applies to digital currencies is likely to be a key priority. HM Revenue & Customs issued guidance on the VAT treatment for Bitcoin and similar cryptocurrencies in 2014, which remain the most up-to-date rules on how this process works.

As such, businesses with cryptocurrency assets should make themselves aware of the regulations before moving ahead with transactions that utilise digital currencies.

The current VAT rules for cryptocurrencies

According to the HMRC rules, cryptocurrencies are to be treated as follows for VAT purposes:

  • Income received from Bitcoin mining activities will generally be considered 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 consideration received
  • 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”
  • When Bitcoin is exchanged for GBP or any other traditional currencies, no VAT will be due on the value of the Bitcoins themselves
  • Charges made in any form 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 above

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 any other similar cryptocurrency.

Potential future developments

These rules continue to apply to cryptocurrency transactions in the UK, but could change based on HMRC policy. In particular, much of the current guidance is based on adherence to EU regulations, and could therefore be revised now that the UK has left the EU; as such, those in charge of overseeing VAT for businesses should keep abreast of any developments.

If you have a question about any aspect of VAT regulations as they apply to cryptocurrencies, call our free VAT helpline on 0333 3638 012 to speak to one of our expert VAT consultants.

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