The internet currency Bitcoins is drawing the attention of US regulators. Recently New York prosecutors confiscated $28 million of the e-currency from the Silk Road marketplace. The Bitcoins were taken because they were received as payments for illegal activities.
In the UK Bitcoins may be about to get an unexpected boost from HM Revenue & Customs.
At present Bitcoins are considered to be “vouchers” and the sale of Bitcoins is therefore subject to a VAT charge at 20% – this makes the wider use of Bitcoins in the UK largely unworkable. After consultations with users HMRC is considering an about turn. They would re-classify Bitcoins as a private currency. This means that VAT will only be chargeable on commission charged by Bitcoins sellers.
It is also likely that holders of Bitcoins would be subject to capital gains tax, although HMRC have indicated that they may provide an exemption for those who hang onto their Bitcoins for more than one year.
If the UK goes ahead with these changes it will be stealing a march on the US who still have no consistent guidance on the likely taxation, or otherwise, of Bitcoin trading.