UK taxman takes Bitcoin.
Indeed, a former President of De Nederlandsche Bank (Dutch Central Bank, part of the European System of central Banks), Nout Wellink was quoted by UK newspaper The Guardian in December last year as saying, "This is worse than the tulip mania [of the 17th Century]. At least then you got a tulip [at the end], now you get nothing."
However, it would appear that Bitcoin is increasingly being accepted as a store of value by tax authorities - note tax guidance issued by Her Majesty's Revenue & Customs (HMRC) in the UK in March 2014. In a document entitled Tax treatment of activities involving Bitcoin and other similar cryptocurrencies, HMRC sets out its position on the tax treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies.
The Bank of England (UK Central Bank) appears agnostic; in its Quarterly Review for Q1 2014, in a paper entitled Money in the Modern Economy, the Bank's analysts state, "Digital currencies are not at present widely used as a medium of exchange. Instead, their popularity largely derives from their ability to serve as an asset class. As such they may have more conceptual similarities to commodities, such as gold, than money."
Watching the way Bitcoin's value moves and how its proponents operate, I would be hard-pressed to disagree with the Old Lady of Threadneedle Street. However, the UK taxman is taking a pragmatic approach. The bottom line is that the taxman won't be demanding Value Added Tax (VAT) on Bitcoin mining or exchanges but VAT will still be applicable in transactions in which Bitcoin is used for goods and services.
Further, "As with any other activity, whether the treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies will be subject to Corporation Tax, Income Tax or Capital Gains Tax depends on the activities and the parties involved."
HMRC added, "Gains and losses incurred on Bitcoin or other cryptocurrencies are chargeable or allowable for Capital Gains Tax if they accrue to an individual or, for Corporation Tax on chargeable gains if they accrue to a company."
While the UK taxman carefully stipulates that the tax treatments it has outlined are for tax purposes only and in no way reflect on the treatment of cryptocurrencies for regulatory or other purposes, there can be no doubt that these nascent regulations on the treatment of Bitcoin are such as to recognize it as a medium of exchange ranking alongside currencies issued on behalf of Governments by Central Banks.
WC Fields once said, "If a thing is worth having, it's worth cheating for." 'Libertarian geeks' (as some see them) may promote Bitcoin as freeing individuals from Government control of money but they haven't found a way of wholly avoiding the long arm of the taxman.
There's just one more thing I should mention before I go. I would like to offer my thanks and appreciation for all the hard work that my colleague Tamara Pitelen has put in on WEALTH Arabia. Over the last four years under her guidance the magazine has provided thought-provoking, educational and amusing copy about all aspects of the management of your wealth - from how to protect and invest it to how and on what to spend it. Sadly, Tamara is now leaving CPI Financial for pastures new. We wish her well in her future career and we'll work hard to ensure that WEALTH Arabia continues to live up to the standards she has set us.
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