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UK reviews Bitcoin tax as global regulators seek to cash in

20 January 2014   (0 Comments)
Posted by: Authors: Jane Wild and Vanessa Houlder
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Authors: Jane Wild and Vanessa Houlder ( FInancial Times Limited)

Britain is reviewing the tax treatment of Bitcoin, a virtual currency that governments fear can be used for tax evasion and money laundering.

HM Revenue and Customs has advised traders that it is looking at alternatives to the current 20 per cent value added tax on purchases of the coin, which is regarded as a voucher rather than a currency. Traders complained that the VAT made their businesses globally uncompetitive and was forcing them to look at moving to more favourable jurisdictions.

The review comes as tax authorities around the world seek to capture revenues from Bitcoin and minimise risks of tax avoidance and evasion. The value of the world’s stock of Bitcoin has risen from $150m to $10bn over the past year, adding urgency to regulators’ efforts to clarify its status.

The US Internal Revenue Service was criticised this month by an internal watchdog which said "the lack of clear answers to basic questions” on digital currencies was probably encouraging tax avoidance.

Singapore has issued new guidelines which will result in levies on profits from trading Bitcoin.

In the UK, the Revenue said one option was to reclassify Bitcoin as private money, as Germany has done. That would limit the VAT on transactions to only the commission charged by trading exchanges.

Hugh Halford-Thompson, founder of the trading website QuickBitcoin, said he had considered moving his business out of the UK because of its tax treatment. "We would have made a loss with every sale, once we passed the VAT threshold,” he said.

HMRC said it was listening to the industry, but had not reached a decision on the final tax treatment. "We have held constructive meetings with stakeholders but this is a complex issue, and we will continue to listen to arguments for alternative VAT treatments under existing VAT law.”

UK policy makers have ruled out classing Bitcoin as an official currency. But there are other ways of viewing Bitcoins. Parallels have been drawn with unofficial local currencies, barter, property and gold, which have a variety of tax treatments.

The nascent virtual currency economy in the UK has been held back from developing, partly because of regulatory uncertainty, but also because of difficulty in obtaining bank accounts.

Richard Asquith, head of tax at TMF, an advisory group, said he expected the debate to move towards giving Bitcoins the same status as gold, which has been exempt from VAT since 2000.

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