H M Revenue & Customs have confirmed that the plan to attach VAT to the trading of Bitcoins is to be scrapped.
Although some tax authorities have concerns over the scope of the virtual currency, such as Russia who has made Bitcoin transactions illegal and China who has banned their banks from handling Bitcoin trades, HMRC has taken the view that Bitcoin transactions are legitimate.
In the new guidance, it said “Bitcoin may be held as an investment or used to pay for goods or services at merchants where it is accepted. In the UK, there are already a number of outlets, including pubs, restaurants and internet retailers, that accept payment by Bitcoin.”
It also added, “Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received.”