Until now Bitcoin has been classified as an electronically supplied service or electronic voucher (depending on which perimeter officer received the query) which meant buying from or trading with a business incurred VAT. This effectively made Bitcoin 20% more expensive in the UK than elsewhere, eliminating any chance for UK businesses to operate in this area.
UK businesses now have the ability to sell bitcoins directly to customers without passing on the 20% VAT charge, making the UK with its financial status probably the most advantageous jurisdiction in the EU to operate a Bitcoin related business. Unfortunately, UK banks have shown very little interest in operating with Bitcoin businesses without specific regulation. They are very risk averse and if the government doesn’t tackle the issue, it may mean the Bitcoin economy will flourish elsewhere at the expense of the UK.
For users of exchanges it is important to note that VAT is being scrapped on all aspects of Bitcoin trading. When you buy or sell Bitcoin on a UK exchange the exchange takes a small fee to facilitate the trade. These fees will now be VAT zero rated, meaning there should be a potential 20% saving on fees for customers and no VAT liability for UK businesses operating trading services.
As a Bitcoin startup we welcome this news and have been pushing for this for nearly 9 months. We met with our local MP Karl McCartney who raised our concerns on this issue in parliament and wrote to the Treasury and HMRC on our behalf. We have also written to members of the cabinet and directly to HMRC ourselves. Hopefully our input alongside the many others who have had similar contacts has raised this issue to the level it deserves.
In all this is great news for the Bitcoin community and we expect to see an influx of startups buying and selling Bitcoins in the UK. The recognition by a UK government agency is an important step towards mainstream adoption and we are now looking to the Financial Conduct Authority to provide UK banks with the regulatory comfort they need to support this fledgling industry.
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Bitcoin currency crash due to problems at MtGox (sounds familiar)