PLANS TO ATTACH VAT to the trading of Bitcoins are to be scrapped by HM Revenue & Customs, the department has confirmed.
The levy will also not be applied to the creation - or so-called ‘mining' - of the virtual currency, new guidance said, but income and corporation taxes will still be charged.
In the last year, the value of Bitcoin has grown significantly from $150m (£110m) to $10bn at its peak.
Today, the market stands at around $7bn and regulators are keen to clarify its status, with some tax authorities concerned over the scope the virtual currency affords for money laundering.
As a result, Russia has made Bitcoin transactions illegal, while China has banned its banks from handling Bitcoin trades.
But HMRC has taken the view that Bitcoin transactions are legitimate.
"Bitcoin may be held as an investment or used to pay for goods or services at merchants where it is accepted. In the UK, there are already a number of outlets, including pubs, restaurants and internet retailers, that accept payment by Bitcoin," it said in its guidance on Monday.
It added: "Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received."
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