Monday, March 3, 2014

Bitcoin VAT to be scrapped by HMRC

The Bitcoin community is targeting the "last barrier" of financial regulation after HMRC was today expected to agree to scrap VAT on the digital currency.
It was reported in January that HMRC was considering exempting Bitcoin from VAT liabilities by reclassifying it to something similar to a fiat currency, and it is expected to confirm the change this week after a meeting with British Bitcoin traders.
It means that businesses would no longer be forced to pay the 20% VAT rate on all revenues held in the currency over a threshold of £79,000 - something seen as a barrier to international competitiveness.
Members of the UK Digital Currency Association (UKDCA), which held the talks with HMRC, hailed the decision and predicted that it will pressurise the Financial Conduct Authority (FCA) to publish guidance on Bitcoin.
Tom Robinson, UKDCA director and co-founder of Bitcoin insured storage firm Elliptic Vault, said: "It's a very progressive view. The decision really puts pressure on the FCA because if it's money, then they should be regulating it.
"The last barrier is financial regulation. The only issue is the FCA still refuses to say anything about it."
He added that the UKDCA has heard nothing from the authority since a meeting between the parties last year.
A spokesman for the body simply told CBR it is keeping a close eye on developments.
He said: "Whilst the FCA does not regulate Bitcoins, businesses providing services related to bitcoins, or other digital currencies, should consider whether they are carrying on regulated activities. As you would expect, the FCA does closely watch new developments in the market."
HMRC's decision comes at a time when the Bitcoin Foundation, a not-for-profit group that develops the software behind the currency, is allegedly preparing to move its headquarters from the US to the UK this spring.
And UKDCA member, and CEO of Bitcoin integration firm Bitcoin Solutions, Gary Rowe, said the news could promote Britain as a hub for cryptocurrency businesses.
"The guidance from HMRC is a major step forward," he said. "I hope that this will show people that the UK is Bitcoin-friendly.
"It's a big green light for business in the UK regarding Bitcoin. The next big thing is guidance from the FCA. It doesn't have to be anything new or special, it just has to treat it the same as anything else."
He said FCA regulation would prove to people that the digital medium of exchange is safe to use, and hopes it could formalise Bitcoin exchanges after Mt. Gox closed following the alleged loss of $350m worth of bitcoins.
"Anybody in the Bitcoin business knew Mt. Gox was going downhill. They had serious problems," Rowe said. "Exchanges should be in the hands of the professionals. Imagine if the LSE took over Bitcoin."
But IDC analyst Alex Kwiatkowski told CBR people should remain sceptical of the currency.
The head of financial insights for Europe said: "The volatility of Bitcoin - not just its price but the collapse of various supporting elements vital to the currency's existence (i.e. Mt. Gox) - should make businesses wary of piling in to something which is still going through the painful teething process."
However, Robinson claimed that Bitcoin is robust, adding that price fluctuations should settle once it is more widely adopted - something he believes will happen if the FCA publishes guidance.