Back in 2009, with the creation of Bitcoin, Government bodies around the world were tasked with dealing with a problem they had never faced before. Namely, how to treat cryptocurrencies within the scope of taxation. This has been a long process and regulation has only come to the fore in the last 2 years in the UK. It should be noted that at present Scotcoin is not taxable. However, it is expected that it may be to some degree in the future. To give you all in an idea of where Scotcoin will fall under the purview of taxation, we’ll be taking a look at the HMRC’s current stance on Bitcoin.
The last directive on Bitcoin by the HMRC was published in September 2014. In a fortunate move for digital currency traders, the UK became one of the best places for Bitcoin start-ups. The legislation outlined rules on the following taxes:
VAT
The VAT treatment of cryptocurrencies in the UK must be consistent with any treatment which may be implemented across the EU. The EU recently voted on issues surrounding cryptocurrency, which we will discuss in more depth later in the article. However, the overall message is that the EU are taking a hands-off approach to prevent stifling new innovation. At present:
- All income which comes as a result of mining activities will generally not be subject to VAT.
- No VAT is due on the value of Bitcoins themselves, where an exchange of Bitcoin to another currency takes place.
- Charges made as a result of carrying out the above exchanges will also be outside the scope of VAT.
- VAT will be levied on any goods or services which are sold in exchange for Bitcoin or any other cryptocurrency.
Corporation Tax, Income Tax and Capital Gains Tax
Businesses which accept payment for goods and services in Bitcoin will see no change in how taxable profit is calculated.
Corporation Tax
Any profit or loss on exchanges between currencies is to be taxable. For any company entering into transactions involving Bitcoin, these transactions will be recorded in accounts and will be taxed under normal corporation tax rules.
Income Tax
In the case of income tax, any non-incorporated business which deals in Bitcoin must declare any profits or losses in their accounts. These will be taxable under normal income tax guidelines.
Capital Gains Tax
When it comes to chargeable gains, any gains or losses incurred on Bitcoin are chargeable or allowable on capital gains tax if they accrue to an individual. They are chargeable or allowable for corporation tax if they accrue to an organisation.
How will Brexit affect Cryptocurrencies ?
As we mentioned above, how the UK treats cryptocurrencies for VAT purposes is determined by decisions made by the EU. On the 26th May, the European Parliament decided to take a hands-off approach to blockchain regulation. Instead, MEPs voted in favour of precautionary monitoring. To achieve this objective, a Virtual Currency Task Force is to be created. This task force will monitor how cryptocurrencies evolve and make recommendations for special regulation should the need ever arise.
However, if Britain votes to leave the EU then the above issues will no longer come under their purview. The UK will then have to decide on their own stance in relation to Bitcoin regulation and VAT. The Financial Conduct Authority, the financial regulator for the UK, has already expressed an interest in developing anti-money laundering regulations. This is unsurprising given that the FCA has made strengthening Britain’s AML regulations a priority over the past few years.
To conclude, although cryptocurrencies are subject to some tax regulation in the UK, Britain can still be considered to be one of the best jurisdictions to trade in digital currencies. This may change should Brexit go ahead. However, given that a ‘hands-off’ approach to regulation is favoured by UK regulatory bodies, it is unlikely that these regulations will change too drastically.
We’ve been saying it for months, and now you know what we said was true.
