The UK’s HM Revenue and Customs (HMRC) is considering alternatives to the current 20% value added tax rate on purchases of Bitcoins due to fears that the virtual currency could be used for tax evasion and money laundering.
According to the Financial Times newspaper, traders have complained that the VAT made their business uncompetitive on a global scale and was forcing them to look at moving to more favorable jurisdictions.
The announcement comes as tax authorities around the world seek to capture more revenue from the virtual currency and lower the risk of tax avoidance and evasion.
In the last year, the value of Bitcoin has grown significantly from $150 million (€110.8 million) to $10 billion and regulators are keen to clarify its status.
For the UK market, HMRC said that one option was to follow in the footsteps of Germany and reclassify the virtual currency as private money, which would limit the VAT on transactions to the commission charged by trading exchanges.
HMRC said that it had listened to calls from the industry, but not yet reached a final decision on the tax.
“We have held constructive meetings with stakeholders but this is a complex issue, and we will continue to listen to arguments for alternative VAT treatments under existing VAT law,” HMRC said.
Policy makers in the UK have ruled out classifying Bitcoin as an official currency but have highlighted other ways of viewing the virtual currency with parallels being drawn with unofficial local currencies, property, barter and gold, each of which have a variety of tax treatments.
The UK virtual currency market has been held back from developing partly because of the uncertainty surrounding the currency and the difficulty in obtaining bank accounts.
Richard Asquith, head of tax at advisory group TMF said he expected Bitcoin to be given the same status of gold, which itself has been exempt from VAT since 2000.