No VAT to be charged on Bitcoin

<p>HMRC has confirmed it will not be adding VAT on to Bitcoin transactions.</p>

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."

Learn about the sterling and forex trading at City Index

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.