Topic: UK Question - Withdrawing and the Tax Man Issue (Read 2546 times)

Exchange BTC for devaluing, inflation-rife fiat currency? Why the hell do you want to do that?

Firstly, cash is income to the taxman. BTCs are not, unless you bring them into the FX system by trading for other currencies. Secondly, large cash withdrawals / deposits are treated with utmost suspicion due to the money laundering element.

Not all merchants accept bitcoins, remember. If you have one particular product that you like, and your favourite merchant both accepts bitcoins AND is financially competitive, then yeah, game on! But I'm a bit bearish on the state of the global financial system based on fiat currencies (yeah, another silverbug / goldbug) and my main interest in Bitcoin is to (a) get some serious hacker-satisfaction of doing something outside the 'system', and (b) exchange my bitcoins for *real* money.

I see BTC as the ultimate 'virtual' money - cryptocurrency, if you prefer. I see silver and gold as the ultimate 'real' money. Buying silver and gold coins with Bitcoins is deliciously ironic, but also a damn sight more secure than holding a large balance of BTC.

I am also more familiar with PM trading. I am not familiar with BTC trading and the BTC/GBP exchanges are both illiquid (by FX standards) and volatile. I don't have time to day-trade BTC - and given the ridiculous fees I'm being charged for transactions on BTC, I need to consolidate somehow... (yeah, I mine in a pool, and get lots of small payments... mea culpa, should have learned that paying 5.00 BTC when my wallet contains loads of 0.01 - 0.23 payments will mean sending hundreds of transactions for my single 5 BTC payment, enforcing a rude fee).


I'm going a bit off-topic here, but as soon as you exchange BTC into GBP (or any other established *currency*), you are effectively receiving *income*. Until BTC are considered a global currency and grouped in with all other FX deals, the UK taxman will see the conversion of BTC to GBP in *exactly* the same light as you doing some IT-service-job and receiving GBP in means of consideration. Therefore, your GBP become *income* and taxable at normal income tax rates. Unless you're a cowboy, you should declare all income and pay tax.

The BIG difference is when you exchange BTC for goods and services that are *not* considered income. A lot of the financial-background types here (like me) are interested in Bitcoin because of the fear that fiat currencies are going to inflate or collapse due to (primarily) the USA's insane debt load. It's not just the USA - the DMO under Gordon Brown issued preposterous amounts of gilts, and we all know about Europe's problems (primarily in the peripheral states). Hence a bunch of us are *really* keen on using our hardware to slowly accumulate BTC to buy silver or gold.

The key is that silver and gold bullion, when 'bought' with bitcoins, are both non-tax 'transactions' (silver sales should attract 20% VAT in the UK, making silver investment a real bitch). All I'm doing is *bartering*, really - giving some computer 'stuff' with no intrinsic value (or any seignorage, due to the distributed nature) and being swapped a silver coin in return. THIS MEANS THE TRANSACTION IS NON-REPORTABLE. There's no need to account for these silver / gold coins. No need.

Sadly the market isn't huge at the moment and the couple of vendors taking BTC for bullion are charging enormous margins - enough to wipe out any potential benefit from not having to pay VAT. However, even though you end up paying around the same in BTC/GBP terms for a silver ounce with the vendor I've used (Midas Bitcoin), the non-financial benefit one gains is that the transaction is utterly painless and then *invisible*. I've not paid cash for the coin - so Midas doesn't have to account for the sale. I haven't paid VAT so don't need to bung it into my VAT return. I may as well have found the coin on the pavement whilst wandering past the champagne bar in Tower 42... This, in itself, has value. And from my dealings with Midas, including one problem, he dealt with the problem very professionally. So best of luck to him, it's a good market to get into right now. Actually considering it myself...


If this is a TL;DR then here's a precis - moving GBP cash around either attracts 'cash transaction' attention, or is simply seen as 'income' to the taxman. Buying goods and services with BTC avoids this, but what if your aim is non-depreciating savings? Consumer goods tend to become worthless. So my advice is to buy silver and gold coins with some of your BTC. Gold and silver will remain safe havens. Your remaining BTCs can be used for day-to-day consumption.

As far as the tax question goes, i would suggest setting up a small business account and keep records. I would think that as long as you can prove your "costs of doing business" ie buying more bitcoin, you should only have to declare you net earnings per tax period.

I imagine that in the not-too-far-distant future you won't have any trouble exchanging your BTC for cash. I would love to pop into town (in the UK) locally and buy BTC for cash at somewhere near the market rate. Right now it can't happen, but as bitcoin gets more popular then more infrastructure will spring up.

Why on Earth has no one made the most obvious suggestion of all?  Spend the bitcoins instead of selling them and depositing the earnings!  I'm not sure how many options there are in the UK specifically, but the wiki lists quite a bit of stuff they can be spent on.  Of course, thisi s only viable if there is something you want/need that is available for BTC at a reasonable price.

I never heard of any game called Second Life, i am however involded in a virtual world by the same name.

The transfers to/from my bankaccount, is what is my RL income/loss, that's what they get to "audit".

Little tip for life, when you ask a tax man what you owe him, he will give you a number

for me I have told them nothing so far. For one reason I have not transferred any money into my account. I have exchanged bitcoins into items ie gfx cards and silver.

So what am i meant to tell them. ohh i had some bitcoins and I got some silver and a gfx card. what do i owe ya. They would think i was nuts

Could you clear something up for me? If you are a part of games like second life, how would you account for the income? I mean if the tax man got all uppity and wanted an audit would they simply apply to the game for records or do you keep them yourself?

Just curious as it may apply to this situation.

Yeah this is my concern, i'm not selling goods or services, just trading so i can keep track of the various trade numbers that are public. However i imagine even this may not be good enough for the taxman due to the nature of bitcoin.

It is sad there is so much suspicion surrounding bitcoin. I am grateful for your more detailed help.

@Alex

Yes - that does make more sense I must admit.   Capital gains is usually on things like houses, cars, valuable that you keep for a while.
If you are trading kilotrades and declare it as a profit that is taxable I can't see the tax man complaining.

That is about the limit of my knowledge - my head is starting to spin already !

You answer your own question. Basically avoid your bank account. Try exchanging bitcoins for cash or, better, use them to buy stuff instead of cashing out.
If you cash them into your bank account in a considerable amount, that might bring you the tax man. I have no idea what would be a "considerable amount" in UK, though.

What if you buy and sell 1000 times per day? Do you need to list every single trade or just show each day's profit/loss (like daily 'income')?

I've traded FX for income and must have made over 20,000 trades in 12 months... I just declared my overall profit for the year as income (in Australia).

Ive been doing business in virtual worlds for a couple of years (both buy low sell high speculation and actual business), only records i ever delivered to my taxman is the actual withdrawal (and deposit), nothing inside of the virtual world. I consider mtgox a virtual world aswell

Thinking about it a bit more, buying and selling bitcoins would be covered by capital gains tax rather than income tax.

If you have a look at:

http://www.hmrc.gov.uk/cgt/intro/basics.htm

you get taxed on the gain in value and I believe it tapers off over time.

Thanks jim that's a great deal of help, i must admit i would rather pay the tax and sleep soundly If anyone thinks i need to keep other records to be extra safe please feel free to suggest which ones.

Thanks again to everyone who replied so far.

RE: records - if you have:
o date bitcoins bought, quantity, price, where from
o date bitcoins sold, quantity, price, who to

I think that would cover it

oh - and if you are married and your wife is not working you can get her to cash the money out and it uses up her tax allowance.
I believe assets are freeing transferable between spouses so it is perfectly kosher.

Receiving regular income isn't suspicious at all, but bitcoin has a rather unfortunate reputation due to the criminal element.

As for records, which should i keep? The bitcoin numbers i buy and sell from and the mtgox information, would that be enough do you think?

You most likely would end up doing a 'full' tax return rather than the usual 'short' tax return.
A bit more paperwork but nothing serious.

I have been audited by HMRC in the past and the secret is to pay promptly and be polite in all your correspondence.   If you are late or stroppy they can fine you 'the same again' i.e. you owe £5000, and the fine is another £5000'.

It is actually worth overpaying slightly if you are in any doubt as that shows you are not trying to con them.   You always get the money back in the end so it's no real loss.

Why is it suspicious to receive regular income?

Isn't 'lumps of cash dropping into your account' what having a job is all about?