HMRC is considering making Bitcoin as easy to use as sterling.
Bitcoin should get its very own currency classification to reduce its VAT liability, an expert has claimed.
Current tax office guidelines class Bitcoin as a voucher, meaning it qualifies for the 20% VAT rate, but HMRC told CBR that it is considering ways to make the cryptocurrency similar to a ‘normal currency’ like sterling.
The move could bring widespread benefits for users of the altcoin, but HMRC faces the major obstacle that because Bitcoin is not legal tender, it cannot officially be classed a normal currency.
However, the co-founder of the world’s first insured Bitcoin storage service has urged HMRC to solve the problem by creating an entirely new category for cryptocurrencies.
Tom Robinson, whose Elliptic Vault service in London stores customers’ bitcoins in offline servers, told CBR: "There needs to be a new classification. What some people don’t understand is that Bitcoin is a really new idea.
"We’ve seen virtual currencies before but cryptocurrencies are fundamentally different and I think they deserve their own classification."
This category could remove the risk of double taxation for firms trading in Bitcoin, where they must pay 20% VAT on all Bitcoin revenue over a threshold of £79,000, making it far less attractive as a medium of exchange.
HMRC’s reconsideration of how Bitcoin is classified follows a meeting with members of the altcoin community last year, when the tax authorities agreed to take another look at it.
If the body decides not to create a new classification, it could instead treat it as an asset and charge capital gains tax on the difference between the buying and selling price, meaning tax would only be collected on gains rather than revenue.
But Robinson believes the currency has suffered in Britain so far from a lack of direction from regulators such as the Financial Conduct Authority, and called for clarity.
"The UK has been given no guidance whatsoever from the FCO," he said. "So far there’s just been complete silence. There needs to be some signal from financial regulators about how they view Bitcoin and cryptocurrencies.
"This taxation issue would be an extremely good first step but we need clarification on how it falls within the financial regulatory framework."
Any new classification must ensure that it is treated as a normal currency too, added Robinson, insofar as measures are made against money laundering and other criminal activities.
His own meeting with HMRC last year ended in the body telling him it would take legal advice on how to reclassify Bitcoin, he claimed.
But after securing an agreement to have Elliptic’s stored bitcoins underwritten by Lloyds of London, Robinson said understanding of the cryptocurrency is growing.
"It’s the same with anyone in insurance or banking whenever you come to them with a brand new concept like Bitcoin: there’s a resistance to it but it’s just a case of explaining what it is how it works what the risks are."