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HMRC issues manual on taxing cryptocurrencies

UK authorities have issued guidance on cryptocurrencies. HMRC’s ‘tax on cryptoassets’ manual details how cryptoassets, including cryptocurrencies such as bitcoin and ethereum, are to be taxed.

VAT on goods exchanged for cryptocurrency

HMRC says that when goods or services are sold in exchange for a cryptocurrency, VAT will be due as per normal.   

The value of supply will thus be calculated in GBP: “The value of the supply of goods or services on which VAT is due will be the pound sterling value of the exchange tokens at the point the transaction takes place.”

No VAT on bitcoin exchanges (for now)

The manual clarifies that financial services supplied by bitcoin exchanges. That is, exchanging bitcoin for legal tender – are not themselves subject to VAT.

“When exchange tokens are exchanged for goods and services, no VAT will be due on the supply of the token itself,” the guidance says.

However, HMRC points out that the guidance is provisional and subject to change.

Am I liable for capital gains tax if I can’t access my crypto wallet?

You’ve probably seen stories about Bitcoin investors losing access to their crypto wallets, potentially missing out on a fortune. 

The issue raises a theoretical question. Beyond losing out on wealth, would you still be liable for the capital gain from a tax perspective? 

The HMRC guidance says that if you can demonstrate that there is no chance of recovering your private key, you can make a negligible value claim. If HMRC accepts the claim, they will thus deem that you have made a capital loss. 

Keep a look out for global cryptocurrency rules

Note that the EU is currently working on a cryptocurrency regulatory framework. US authorities are likewise looking into advanced measures to detect potential crypto-linked tax evasion.

Russian Prime Minister Mikhail Mishustin has stated that the country needs new laws to effectively tax bitcoin and other cryptocurrencies. 

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Vatglobal’s expert team is carefully monitoring new VAT regulations. We’ll ensure you always have the knowledge and advanced technology you need to optimise your VAT compliance. 


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