Trading Bitcoins what tax do I have to pay?

Dannyboyni

I am in the process of buying and selling bitcoins. Bitcoins are an on-line virtual currency. (I do not know if the uk government officially recognises it as a currency)

My question is what type of tax should I be paying on the buying and selling of bitcoins. Let me give a simple example.

I buy £500 worth of bitcoins, I sell those £500 worth of bitcoins for £600. This means I have made a profit of £100.

So what tax is due? Would it be capital gains tax?

If it is counted as capital gains then I assume I would not have to declare the £500 spent and £100 profit unless I made over £10,600 in capital gains?

All of my income from the selling of bitcoins would be paid from UKBT direct into my account.

Many thanks.

sequence

I'm no expert, but I would have thought that it would be treated the same as any other kind of trading, ie the same as a market stall holder. I think you would register as self employed and declare £600 income less £500 expenses, £100 taxable profit. On that you'd pay at least 20% tax and NI.

Davide123

Interesting researching into this, I can't see a clear answer either way but you would try and argue it was CGT rather than income tax as that would be lower rate of tax for you....
I would suggest you see a tax advisor for an opinion.

zygurat789

Dannyboyni wrote: »

I am in the process of buying and selling bitcoins. Bitcoins are an on-line virtual currency. (I do not know if the uk government officially recognises it as a currency)

My question is what type of tax should I be paying on the buying and selling of bitcoins. Let me give a simple example.

I buy £500 worth of bitcoins, I sell those £500 worth of bitcoins for £600. This means I have made a profit of £100.

So what tax is due? Would it be capital gains tax?

If it is counted as capital gains then I assume I would not have to declare the £500 spent and £100 profit unless I made over £10,600 in capital gains?

All of my income from the selling of bitcoins would be paid from UKBT direct into my account.

Many thanks.

It looks like trading, it sounds like trding, perhaps.......
You make it sound like trading, you don't even mention the word gain. Apart from the fact that you would pay less tax , why do you think it should be taxed as a capital gain?

jimmo

Whilst bitcoins are a virtual currency it seems to me that the question of whether you are trading or speculating can be compared to share trading or trading in derivatives.

In the following link I think the important part is:

To determine if a speculative activity is trading (or an adventure in the nature of trade), it is important to consider whether the operations are carried out in the same way as any ordinary trader in those assets operates. Established traders in shares operate to minimise, or limit, the exposure to chance. They do this in a variety of ways.
They have customers who sell to them and buy from them regularly, to whom they market their services, and will quote prices for buying and selling. The prices quoted will be spread, so they can achieve profits. They make profits from moving huge volumes of shares very quickly.
They hedge large holdings of a security with derivative instruments to ensure that if they hold on to positions for any length of time, they have only a limited exposure to general market movements.
They have very strict rules about the degree of risk to which any trader is allowed to expose the firm.

So, while share traders do buy and sell shares to profit from anticipated market movements it is not the sole way in which they make a profit. Speculation is only part, and a strictly controlled part, of a more complex trading operation. Their operations are designed to make profits whichever way market prices move, by turning over stock as a wholesaler or as a retailer. Whether an individual operates in the same way as a share trader is a question of fact. So, it is necessary first of all to establish how the individual operates and what action he or she takes to minimise risk and secure profits.

http://www.hmrc.gov.uk/manuals/bimmanual/bim65701.htm

You need to ask yourself whether you are gambling or trading but, to draw another parallel, HMRC are quite happy to accept that somebody who successfully, and regularly wins on the horses is not taxable on his winnings because that could open the floodgates for other punters to claim tax relief on their losses.