Bitcoins have received their fair share of attention over the past couple of months. The volatility of the market price for bitcoins makes for a lot of potential profits. Therefore, it is not surprising that the crypto currency has been receiving more attention from the British tax authorities. The HMRC has published guidelines regarding the taxability of bitcoins and other crypto currencies.
The guidelines cover taxability issues related to VAT, income taxes, corporation taxes and capital gains taxes. They specify the taxability of several bitcoin related activities under the aforementioned taxes. First of all, the guidelines state that VAT rules are applied to bitcoins in the same way they are applied to goods and services. However, income that has been generated through bitcoin mining activities is VAT exempt. The same goes for transactions on the bitcoin exchange markets: no VAT is due on the value of the bitcoins traded.
These exemptions do not apply for income taxes, corporate taxes and capital gains taxes. In the case of these taxes, the profits and losses arising from the trading of bitcoins on a bitcoin exchange market are taxable just like profits and losses related to the exchange of regular currencies. This means the general principles that apply to profits and losses on regular currency contracts also apply to transactions involving bitcoins and other crypto currencies.