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 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?
Bitcoin is the world’s first decentralized digital currency, known as a ‘cryptocurrency’. Because cryptocurrencies are a relatively recent development, determining the legal and regulatory status is ongoing. Here is the detail about VAT on Bitcoins mining.
Bitcoin operates independently of any bank or central authority; a peer-to-peer network manages the issue, processing, and verification of the cryptocurrency. Transactions recorded in a shared public database called a ‘block-chain’.
Bitcoin created when a new block added to the chain and new blocks can only add when complex algorithms solved. It’s known as mining and is where the expensive IT equipment 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), Bitcoins mining, and other cryptocurrencies. There is also some guidance in HMRC Manual VATFIN2330.