VAT on Bitcoins mining

Q: I have purchased a number of machines to mine Bitcoin; the intention is to mine the currency, retain for a period, and then sell. These machines are imported from China to the UK and my client has incurred import VAT. Is she entitled to VAT register and recover the VAT on these machines?

A: Bitcoin is the world’s first decentralised digital currency, otherwise known as a ‘cryptocurrency’.

Because cryptocurrencies are a relatively recent development, determining the legal and regulatory status is ongoing.

Bitcoin operates independently of any bank or central authority; a peer-to-peer network manages the issue, processing, and verification of the cryptocurrency. Transactions are recorded in a shared public database called a ‘block-chain’.

Bitcoin is created when a new block is added to the chain and new blocks can only be added when complex algorithms are solved.  This is known as mining and is where the expensive IT equipment is required as there is often a bank of computers working around the clock trying to crack the codes.

Bitcoin received for mining activities is outside the scope of VAT, as mining cryptocurrency does not constitute an economic activity for VAT purposes. As with other currency exchanges, the sale of a cryptocurrency will either not be a supply at all, or will constitute an exempt supply.

On the basis that your client’s activities either are outside the scope of VAT or exempt under VATA1994, Schedule 9, Group 5 the VAT she incurs on her related costs will be irrecoverable.

HM Revenue & Customs have set out the VAT Liability in Revenue & Customs Brief 9 (2014): Bitcoin and other cryptocurrencies. There is also some guidance in HMRC Manual VATFIN2330.

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