Bitcoin & VAT: What It Means For Businesses
More of a concept than the commonly-used business practice its inventors hoped it would become, the use of the bitcoin system for businesses to make payments is unchartered territory for many.
But what actually is bitcoin' Well, it is defined as a decentralised digital currency that enables instant payments between businesses anywhere in the world. It is decentralised in the sense that it is designed around the idea that it is created by cryptography rather than a central authority such as the Bank Of England.
A complex currency system, there is concern amongst businesses as to what implications it could have from a VAT perspective. It is important to be aware of what goods and services would normally be liable for value added tax, however there is a strong argument circulating in the business world at the moment that Bitcoin can be classed as a foreign currency.
According to the Ministry of Finance, UK businesses trading in foreign currency don’t have to pay VAT on certain goods or services. Teaching services, online press releases and vocational training are examples of services which wouldn’t incur it, meaning that a company that sends staff on lots of training days or engages in digital promotion via press releases could opt to pay using the Bitcoin currency. Do be aware however that only a small amount of suppliers except Bitcoin as a payment method.
Most tax authorities suggest that businesses treat Bitcoin as an ‘electronic service’, meaning value added tax is indeed not incurred. However, a problem arises when we consider that the company receiving a bitcoin payment will at some point want to get rid of them. This is then considered a sale and therefore VAT must be added. It is for this reason that merchants are very reluctant to start accepting payments in bitcoin.
However, it has been suggested in some circles that should a business want to avoid paying VAT on the sale of the bitcoin currency then they should do so on an exchange based outside of the EU. There are a multitude of forums dedicated to the debate surrounding the currency and judging by some of the lengthy debates taking place then the issue of bitcoin isn’t going to get any simpler any time soon. There are companies such as Accordance on the market equipped to offer UK businesses further VAT advice on the topic and whilst the forums are useful it is difficult to extract the right answer from the endless list of users offering their own advice.
Whilst Bitcoin share prices plummeted after an initial surge, the good news is that the situation has now stabilised, so should it become a universally utilised business currency this recent state of tranquillity will come as a welcome piece of news, especially given the uncertainty surrounding reclamation on business purchasing.
- Vues3563