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HMRC’s opinion on cryptocurrencies is given here. This covers VAT, corporation, income and capital gains taxes. Cryptocurrencies are a new and evolving area and they have a unique identity and cannot be directly compared to any other form of investment activity or payment mechanism. This means the tax position needs to be looked at in a case-by-case basis taking into account the specific facts.
In HMRC’s view buying and selling Bitcoin can fall into one of three classifications:
Short-term speculating – like gambling or betting wins. This mean it’s not taxable, neither can you get relief if you make a loss.
Buying and Selling with the intention to make a gain – If trading profits are liable to income tax and losses are tax deductible. HMRC looks for trends that point towards.
Occasional investments – Gains and losses made from buying and selling are within the scope of capital gains tax and will be taxed or relief given according to the usual rules. Capital gains and losses on Bitcoin are chargeable or allowable for Capital Gains Tax (for individuals) and for the corporation tax (for companies).
HMRC says that the precise valuation of Bitcoin for tax purposes isn’t clear, its valuation office will give its view of the value to be used for working out gains and losses.
Bitcoin mining can be considered as a trade by HMRC and they might lump in any profits and losses from buying and selling the currency under the relevant trade taxes. As for VAT HMRC consider Bitcoin mining outside the scope of VAT, which means money received by miners for making a Bitcoin deal is exempt. If Bitcoin is exchanged for other currencies, no VAT is due on the value of the transaction.
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