The VAT or Value Added Tax in the United Kingdom has been the third largest source of revenue in the UK since the VAT replaced the “Purchase Tax” in 1973. The VAT is placed on most goods and services in the UK provided by legitimate businesses.
In early February the HMRC (Her Majesty’s Revenue and Customs) reiterated that the tax would be applied to all Bitcoin transactions including online trades of the virtual currency on exchanges such as the ill-fated Tokyo based Mt. Gox. The Japanese Bitcoin exchange declared bankruptcy after losing track of 744,000 Bitcoins. The standard rate for the VAT was a hefty 20 percent. There was concern that a 20 percent tax on all Bitcoin trading in the UK would put entrepreneurs in a tight financial spot, making it hard to turn a profit for fledgling companies. However this week they changed their position and have announced that while VAT must be collected on goods and services sold for Bitcoin, the trades themselves would not be taxed.
The Bitcoin is only a five-year-old currency, and new business opportunities are springing up all around it. From Bitcoin ATM’s to POS systems designed to take the currency, this new sector is hailing support for what is being by called many a “progressive” position from the UK.
The United States has yet to decide a firm position on the taxation and regulation of Bitcoin, though some companies are choosing to begin taking it as accepted payment. While it was stated at the United States Senate hearing “Beyond Silk Road: Potential Risks, Threats and Promises of Virtual Currencies,” that Bitcoin was an accepted legal form of currency, the IRS has yet to say anything on the matter.
Whether a nation takes an open stance on Bitcoin regulation is of great interest to those following the digital currencies rise to prominence. Bitcoin has garnered heavy negative attention as the perfect financial outlet for illegal activity including money laundering, purchasing of illegal drugs, and the selling and purchasing of child pornography among other illicit activities.
Going forward all Bitcoin transactions within the UK will still be subject to capital gains, income, and corporation tax, the hope being that with VAT lifted, companies using Bitcoin will be able to operate and more importantly compete, on a global scale.
Time will tell if other nations will open their arms to digital currencies such as Bitcoin. The United Kingdom is undeniably paving the way for how to approach it and the implications on a global scale are massive if major nations follow suit. The idea behind Bitcoin after all was to create a global currency, unifying our markets through one singular exchange rate. But that future is a long way off, until then, baby steps.
Edited by Cassandra Tucker
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