The UK tax administration HMRC would exempt transactions in Bitcoins from the 20% UK VAT net on each sale or on profit margins, although exchange commissions would remain liable.
HMRC originally provided guidance in November 2013 that Bitcoins were single use vouchers liable to full 20% VAT on each transaction. HMRC has now confirmed that it will issue fresh guidance in March 2014 that virtual currencies will be exempted from VAT. This will help establish the UK as potentially the most attractive location for small global Bitcoin dealers. However, they will certainly have to pay capital gains tax above their annual personal capital gains threshold of £10,900 for the tax year 2013-14.
The change will have limited impact for medium or large dealers since they would already be VAT registered so would have been able to recover any VAT they were charged. They will remain subject to corporation tax on their capital gains.
