I have just agreed with an Inspector of taxes -the answer to the above.
Bitcoin Mining is not a trade.
Any Bitcoins "mined" will only be taxed when they are sold and converted to Fiat Currency and would be subject simply to CGT. The mining "cost" will be seem as the cost of the investment, which means losses potentially would be relievable.
Bitcoins and other cryptocurrenies will only be taxed when they are sold and then subect just to CGT.
This all seems a good outcome and I wonder if any other accountants have agreed similar terms from the revenue?
Thanks in anticipation of replies.
Related resources
Replies (13)
Please login or register to join the discussion.
I'm overcome with that feeling people get when they half-heartedly join a queue of people who care, only to realise that they're standing at the front of the queue, with nobody behind them, so they just walk off.
I agree with little of what you've said.
In brief, unless HMRC has changed its policy on crypto currencies recently, it treats dealing in them like other currencies and the usual tax treatments apply, i.e. could be trade income/loss, could be CGT gain/loss depending on circumstances.
As for mining, I haven't looked at what HMRC says about this, but I can't see why it wouldn't be a trading activity. It's not dealing in currencies, it's more like getting paid commission for making the deal.
Are you sure the inspector knew what he was agreeing or that you understood what he was agreeing to?
Hi Tony Court
Thanks for your thoughts.
The lady concerned seemed to understand my questions and seemed familiar with the subject..
She was quite categorical that the mining and investing in Bitcoins was purely going to produce a CGT reality and that would be only realised sales .
Just for your interest-most mining now is called "pooled" mining because such is the state of play-that you need huge computer power to mine a bitcoin. The "pooled" means you get a small fraction daily of the "pooling" results. In other countries they treat mining as a trade but not the UK.
Given that the daily results are paid as a fraction of a Bitcoin and that the value of bitcoins has gone up 10 times in the last year-its a very profitable activity.
Cheers
Either the person you spoke to hasnt a clue or they have changed their minds without telling anyone.
Mining was trading when I looked at this 6 months ago..
Its a currency according to HMRC so any trading in currency is currency speculation ie a CGT issue.
I refer you to the only document HMRC have on their website:
https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2...
In a letter I have from the revenue about my client-they say-
"In your letter you are asking HMRC to agree that bitcoin mining is considered a trade. We are unfortunately unable to agree to this."
This was from a Higher Officer.
Looks like we have clarification.
When you say "Higher Officer", is that how they signed their letter? I've not seen exactly that designation before.
I think she is wrong. I reiterate my earlier question, but with further emphasis; are you sure they know the difference between mining and dealing in Bitcoin? They are entirely different things. I would say there's a close similarity to say, a stockbroker who also invests in shares.
As for speculating in any currency it can be a trade, or part of a trading transaction, or an investment and so not trading and therefore within the scope of CGT.
While you might (only might) be able to rely on HMRC's letter for the case in question, in general I would say it's wrong.
I think it would be in your client's interest that you read HMRC's statement referred to in Ireally's post, which as far as I know remains HMRC's current view .
It now having been revealed that the source of the "decision" is not, in fact, an Inspector is also undermining. Not sure if you spotted what I did there?
The decision also appears to be we can't say that we agree with you, as opposed to an unequivocal disagreement.
I think we'll need something more concrete than a report of what one inspector (possibly mistakenly) has said before changing the widely held and generally accepted opinion that bitcoin mining is a trading activity.
In what way could it be said to not be trading?
Thank Tony
I will get it in writing so I can rely on this.
They seem emphatic which is very good news I think.
If it all blows up -I will report........
Cheers
Referring back to a thread from yesterday, I have a letter on file somewhere from a HMRC officer adamant that mortgage interest was not allowable on a BTL remortgage due to the funds being used to buy the owners PPR.
They were wrong, as they later conceded.
+added to say Taxation covered this topic at some point.
Well worth taking a look on there.
I should point out my normal clueless questions will resume soon, I seem to have almost known what I am doing for two days in a row. Probably a record.
Mining bitcoins involve computer equipment, a really good processor, electric to generate power for Said processor.
With that being said,due to the nature of mining, there is no certainty that you will produce a bit coin, as the algorithms used to decyfer can take x amount of time to solve.
So, if it's a trading activity one could assume a person may have years off losses carried forward until such time as a bit coin is generated.
Once generated its now an asset is it not? Since it holds value.
How you do recognise its value at the time of generation, as to calculate profit once sold?
It seems to me if it's treated as a trading activity there's the possibility of never actually paying any tax due to the above.
Trading is of course completely different.
I have only a broad understanding of the Bitcoin mining process, so I'm happy to be corrected if I err.
The activity of mining doesn't directly generate Bitcoins for the miner (in fact it doesn't generate Bitcoins at all - there is a finite number of coins that can be traded). So, the value of the asset (the Bitcoins) is not relevant to the trading activity other than in determining the amount of commission/fee generated from being the miner who sealed the deal for the trade.
As you say, the miner will need good hardware and software, they may already have the former for other purposes. Ether way, they expend money on assets which they use in trying to earn money from making deals, with the chance of making a profit or a loss - sounds like trading to me.