The United Kingdom’s Revenue and Customs authority is close to issuing its first rules and guidelines that would treat cryptocurrencies as regular money, according to Tom Robinson, the director of the industry group U.K. Digital Currency Association, who says he has seen a final draft of the regulations.
On meetings last week with Her Majesty’s Revenue and Customs, the Association was presented with an outline of the planned tax rules for online currencies. Tax authorities throughout the world have seen difficulties in how they should deal with these currencies, which have traits of speculative assets and traditional money.
“We have come to understand that the rules are almost finalized and the HMRC will be releasing them to the public within a week,” said Mr Robinson, who is also co-founder of Eliptic, a digital-currency services firm.
“From what I saw, the described treatment in terms of taxation for cryptocurrencies was almost identical to that of any other currency,” he added. “For example, no value-added tax would be due on the trading commissions charged by an exchange or for the regular purchase of the cryptocurrencies.”
He said that he is relatively certain that these new tax rules would be the same as he saw in the proposed paper, although he couldn’t confirm it. In a statement HMRC said that it “was working very closely with bitcoin industry representatives regarding the tax treatment of bitcoin trade and commissions. Technical guidance will be issued shortly.”
Like many European countries, the U.K. charges VAT - a type of national sales tax - on the purchase of most services and goods. At the moment, there is no VAT for the purchase of bitcoins themselves, though if VAT was due for a product, the tax has to be paid regardless of how the payment was made - with pounds, bitcons or something else. It remains unclear whether investors in the digital currency have been levied with capital-gains tax on any profits from investing in bitcoin.
If the new directives are as described by Mr Robinson, it would continue the practice of non-taxation on currency purchases. According to his assessment, HMRC is likely to place a capital-gains tax on profits made from trading online currencies much like it is for the trade of other currencies and stocks. Currently the U.K. exempts profits made from foreign currency purchasing for personal use outside the country, from capital-gains tax.
HMRC’s steps come after similar efforts from governments across the world to regulate the cryptocurrencies, which have gained increasing popularity and greater acceptance of late. The coming clarity regarding taxation may encourage some of the bitcoin-related businesses to stay in the country said Mr Robinson.
Governments including Germany and Norway have already stated that taxes will be applied to the purchase and sale of online currencies. In the U.S., where there is no VAT, the Internal Revenue Services is currently reviewing if capital-gains tax or an ordinary income tax should be collected.
More regulation has been demanded in the last couple of days as bitcoin and many of its investors have suffered several setbacks. The main exchange for the cryptocurrency Mt. Gox said on Friday that more than $470 million of the currency had been stolen from them and filed for bankruptcy protection in Japan.
Regulators like the U.S. Securities and Exchange Commission are still looking at whether bitcoin should be in their jurisdiction. Their agencies are monitoring bitcoin but the newly appointed Federal Reserve Chair Janet Yellen said last week that they have no authority to regulate an online currency that “doesn’t touch” banks overseen by the Fed.