Bitcoin – Another Update
There have been yet more developments in the fast-moving world of cryptocurrencies, and Bitcoin in particular.
Mt. Gox Collapses
One of the best known and biggest Bitcoin currency exchanges, Mt Gox, last week filed for bankruptcy protection as it suffered, or claimed to suffer, a security breach which resulted in $480m worth of Bitcoins going missing.
Fears about the exchange, based in Tokyo and the United States, arose when it froze withdrawals and eventually shutdown trading altogether. The companys chief executive, Mark Karpels, announced that Mt Gox was to seek a court-led restructuring, having found itself with debts of Y6.5bn ($64m) and assets of Y3.9bn. About 750,000 Bitcoins belonging to customers and 100,000 belonging to the company had been lost, he said, in a theft detected on February 24. Calls for regulation of Bitcoin were made around the world, whilst many investors suspected fraud.
Nigel Power QC and Daniel Rogers from 7 Harrington Street have been instructed by Englands leading Bitcoin solicitors, Selachii LLP, to pursue a group action for investors who have lost out.
HMRC Announces its Approach to Bitcoin
After months of speculation, HMRC announced a favourable taxation approach to Bitcoin, deciding to treat it as a currency rather than vouchers. This is welcome news for the prospects of Bitcoin in the UK and follows the general tenor of the approach in Germany. Had HMRC decided to treat Bitcoins as vouchers, the tax disincentive would almost certainly driven Bitcoin activity away from the UK.
For VAT (but not regulatory or other) purposes, Bitcoin and similar cryptocurrencies will be treated as follows:
1. Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient linkbetween any services provided and any consideration received.
2. Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments.’
3. When Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves.
4. Charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above.
On the flipside, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin or other similar cryptocurrency. The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place.
The full announcement can be found here.
Bitcoin Foundation Moves to London
The Bitcoin Foundation is the global organisation that standardizes, protects and promotes the use of Bitcoin cryptographic money for the benefit of users worldwide. As the HMRC was about to announce its approach to Bitcoin, the Foundation announced that it was relocating to London, a positive move for the UK.