Bitcoin and other cryptocurrencies are becoming increasingly popular, especially with the high growth in value of Bitcoin over the last year or so ( I should at this point mention that the value of Bitcoin and cryptocurrencies can go down as well as up !!! ). The tax implications are still being thought through, although HMRC business brief 9/2014 outlines HMRC’s approach to the taxation of cryptocurrencies.
If someone buys Bitcoin to hold as an investment, or sets up a business to take payment in Bitcoin, then that person MUST keep proper accounting records, and report any gain or income to HMRC.
Another alternative is that Bitcoin falls into the realms of gambling, where there is no tax implications. For a transaction to be a gambling transaction, the person must be acting in a personal capacity and the other person in the transaction simply held differing views as to which direction the currency would move in. There would be no stake, and there would be a clear winner and a clear loser.
Our own opinion is that HMRC will seek to attribute a clear taxable position on any cryptocurrency activity, and it is therefore essential that all clients keep us informed of any activity they have in cryptocurrency, and they must keep adequate records of all such activity.
As always, investors in cryptocurrencies should seek professional advice and make sure they understand the risks and consequencies of any venture into this area.