March 2nd 2014
Normally we at MultiBit keep a low profile, but once in a while we like to let people know what we've been doing behind the scenes. Today is one of those days.
On 2nd March 2014, news broke via the Financial Times in the UK (see the article on Reddit) that HMRC (the UK equivalent of the US Inland Revenue Service) had been in talks with various members of the UK Bitcoin community to clear up the tax treatment of Bitcoin. Prior to this UK entrepreneurs were struggling to get their businesses off the ground in the face of the crippling tax burden being imposed - mostly due to 20% VAT (sales tax) on the use of Bitcoin. Also the lack of clear guidance about Bitcoin from HMRC was making it difficult for banks to accept Bitcoin businesses thus slowing down adoption.
Clearly something had to be done, and fortunately the UK Bitcoin community began discussions with HMRC to provide them with better information about what Bitcoin was and to offer suggestions about how it should be treated under UK tax law. HMRC, to its credit, listened and came back with a much improved set of tax rules.
The full details can be found on their website but the short version is that UK businesses can now (and retroactively) treat Bitcoin just as they would any other foreign currency. That is, there is no tax on using Bitcoin, but taxes apply as usual to any profits made either through holding Bitcoin (capital gain) or for goods purchased with Bitcoin (normal VAT rules). All taxes are to be paid in Sterling as normal, and HMRC itself would not frown on businesses using Bitcoin as their operating currency. This is in keeping with import/export businesses that predominantly return accounts in, say, US dollars or Euros.
Gary Rowe, CEO of Bitcoin Solutions Ltd the company behind MultiBit, attended the final meeting to help review the final draft of the proposal. In the run up to this meeting he, along with others, provided HMRC with additional information about Bitcoin and its importance to the UK economy. He commented that, "HMRC started out not knowing much about Bitcoin but very quickly applied themselves and have come up with a tax treatment that is both fair and reasonable to UK Bitcoin businesses. I hope that this will show people that the UK is Bitcoin-friendly."
All in all, we consider this a big step forward for Bitcoin.