HMRC have published Guidelines for Compliance (GfC) 21, 'Help with VAT treatment of cryptoassets'. The guidance outlines HMRC's approach to how UK VAT rules apply for businesses involved in cryptoasset transactions.
The guidelines are intended to help businesses work out when UK VAT may apply to Cryptoasset activities and the information they need to collect to meet their VAT obligations.
- Following the guidelines should help to reduce the risk of mistakes and VAT penalties.
GfC21 helpfully clarifies that there are no separate VAT rules for Cryptoassets. The VAT treatment of a cryptoasset transaction depends on the underlying asset.
- Cryptoassets, also known as 'tokens', are a digital representation of value, the ownership of which can be transferred.
- Some tokens can represent the ownership of something or the right to access goods or services.
- The underlying asset that the token represents can be tangible or intangible.
- For example, a digital artist may create an image with its own Non-Fungible Token (NFT), a unique digital certificate that represents ownership of that image. The NFT could be sold and the buyer then takes ownership of rights to the image.
- HMRC explain that the definition or description of a token is not relevant for VAT purposes. Businesses need to consider what is supplied and how it is used.
- A supply could involve goods or services.
Both UK and overseas businesses involved in cryptoasset transactions are covered by the guidelines. These include:
- Businesses that sell or exchange cryptoassets.
- Examples would be artists and creators who supply cryptoassets directly to customers.
- Businesses that operate Digital platforms or marketplaces where other people do this.
The guidelines set out a recommended approach for:
- When to Register for VAT.
- The Reverse charge.
- Where the reverse charge applies, it may not be necessary to register for UK VAT.
- Record-keeping and customer information.
- The guidelines emphasise the importance of collecting and keeping sufficient information to determine the correct VAT treatment of cryptoasset transactions, including complying with the Place of supply rules.
- The guidelines stress that if a business does not collect sufficient customer information, it may under-declare VAT, which can lead to compliance checks by HMRC, VAT adjustments and, where appropriate, interest and penalties.
- Determining whether a supply is a digital service.
- Digital services can include:
- Radio and television broadcasting services.
- Telecommunication services.
- Electronically Supplied Services (ESS).
- Digital services have their own Place of supply rules.
- Digital services can include:
- How VAT applies in the use of digital portals, gateways and marketplaces.
- Digital platform and marketplace operators are liable to account for VAT on sales unless they meet all of a list of specific conditions.
- The conditions mean that most digital platforms will be liable to account for the VAT on third-party sales.
A forthcoming subscriber guide will explore the detail contained in GfC21.
Useful guides on this topic
Cryptoassets: How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?
How do you tax Bitcoin? Are cryptocurrency or cryptoasset gains or profits, taxable? Can you obtain tax relief if you make losses on Bitcoin? Gains on transactions in cryptoassets are potentially taxable in the same way as other investments.
Goods or services for VAT
What are goods and what are services for VAT? The answer may have an impact on the time of supply, the place of supply and, in some cases, the rate of the supply. The answer is not always as straightforward as it may seem.
Online Marketplaces: Selling goods in the UK
When do you have to register for UK VAT? When is UK VAT payable? What amount is VAT payable on? What information do you have to give the marketplace provider? What will it do with that information?
Place Of Supply: Goods
The Place Of Supply (POS) of goods determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.
Place Of Supply: Services
The Place Of Supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.
Reverse charge: Cross-border services
A UK business may be required to operate the reverse charge on services it receives from abroad.
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