Cryptocurrencies, like Bitcoin, are fast becoming a modern way
of accepting payments. However, most people don’t realise that the tax
implications are vague at best.
Back in the day, people could rely on their sterling to
purchase pretty much anything, from high street shops to online retailers.
Even if the store you were purchasing from was based in another country, providers
like PayPal made it easy to exchange your pounds at whatever the current
exchange rate was.
A few years ago, this all changed with cryptocurrencies. Bitcoin
entered the market, with others soon following suit. Now there are hundreds, if
not thousands, of businesses accepting payments with cryptocurrencies and a few
are even creating their own!
With the big rise in Bitcoin’s value last year, do you realise
that the gain you made is taxable?
Currently there is no concrete guidance from HMRC as to how
these new “assets” are treated as they are not considered cash, or even
financial assets in some circumstances!
This leaves us with the dilemma of how is it treated? The simple
truth is that it depends on the reason for the currencies being held. If they
are received as income for a sale of goods or services, they are considered
income and thus taxable as income tax, along with the obligation for VAT.
If the currency is held for investment purposes, the gain
that arises is classified as a capital gain and thus, subject to capital gains
tax (or as a chargeable gain for limited companies).
This creates a problem that will only be solved once
concrete guidance is issued which so far, does not look to be anytime soon!
One thing that is for certain though is that it is taxable
in one form or another.
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