Britain to drop 20% tax on Bitcoin trading

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It’s no secret that Bitcoin’s unusual structure has completely blindsided governments and financial regulators across the globe. In fact, Bitcoin is so unlike traditional forms of money that it’s proving difficult to fit into existing tax laws. Even knowing how to broadly define the cryptocurrency to know how it should be taxed is proving problematic. This has been particularly troublesome in Britain, where Bitcoin has been defined in recent months by HM Revenue & Customs (HMRC) as a “voucher,” which slaps a value added tax (VAT) of 20% on all transactions.

That ruling is set to change this week with the announcement that the U.K. will now classify virtual currencies as assets or private money. HMRC will still charge additional taxes on companies that buy or sell Bitcoin, but will not tax margins.

The changes, though welcome, are not unexpected. Late last year HMRC hinted that it was rethinking its stance on Bitcoin, and met with members of the rapidly growing Bitcoin community to discuss how virtual currencies should be treated under British law.

The new ruling comes at a time when Bitcoin-based businesses could use a little good news. Following the recent half-billion dollar implosion of Mt.Gox, Bitcoin has entered into the mainstream in a decidedly negative context. The relaxation of near-crippling tax rules for U.K. based Bitcoin trade can only help spur future investment in virtual currencies in the country, which is increasingly under pressure from European institutions working with considerably less restricting burdens.

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