HM Revenue and Customs (HMRC) has confirmed it is not going to charge value added tax (VAT) on transactions made with the virtual currency Bitcoin.
In new guidance issued by the body, it was revealed that the 20 per cent VAT levy is not going to be added to Bitcoin transactions, perhaps providing a boost to the cryptocurrency.
However, it was noted by the body that corporation and income taxes would still apply. The Bitcoin market is now thought to be worth £4.2 billion at the existing value of the virtual currency, which has been making headlines around the world in the last 12 months.
Bitcoin trading and other activities, such as charges for verifying transactions, were revealed by HMRC to be "exempt because they fall within the definition of 'transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments'".
Nations banning Bitcoin
But not all countries have been as receptive to the rise of Bitcoin as the UK has, with transactions using the currency having been banned in Russia. They are also being strictly monitored in China, restricting the ways in which users are able to spend their Bitcoins.
There are still only a handful of physical locations in the UK and the US where Bitcoins can be spent, as most transactions involving the virtual currency are carried out via the internet.
Bitcoin hit a three-month low at the end of last month on the back of the news the world's largest exchange for the virtual currency, MtGox, had gone offline.
MtGox has recently filed for bankruptcy as well and the future of Bitcoin has been cast into doubt as a result of its failure. It is believed that almost $500 million (£300 million) in customer deposits was lost thanks to the failure of the exchange.
In a statement, HMRC said: "The advent of cryptocurrencies such as Bitcoin is a new and evolving area and determining their legal and regulatory status is ongoing. Cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism."
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