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Bitcoin Is Getting More Real Every Day

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You can buy discount broadloom, see a last-place team, donate to fringe political candidates, waste more time and money at a coffee shop, accumulate hotel rewards and buy porn, travel with some difficulty, run a massive online black market and throw your money away in Vegas, all with bitcoins. And soon, you'll be taxed on them.

For the moment, the regulatory vacuum is good for British bitcoiners: There is no VAT charged on purchases of bitcoin itself. (There is, of course, a value-added tax levied on the burger itself—whether purchased in pounds, bitcoin or anything else….)

That state of affairs may not last long: Britain's tax authority, Her Majesty's Revenue and Customs, is reviewing the tax structure for virtual currencies such as bitcoin, a spokesman said.

It isn't clear when any guidelines will be issued. But tax experts say users of the currency should be prepared for at least some taxation. Mr. Asquith said the government "may give bitcoin a similar treatment as gold for value-added tax."

That would mean anyone buying or selling bitcoin owes VAT only on the commissions charged by a bitcoin exchange, not on the full amount of the transaction….

The U.K. exempts transactions in currencies from VAT, but only if the currency is "legal tender," according to the HMRC spokesman. And "virtual currency is not legal tender," he said. Still, he indicated that the government is keeping its options open: "To be clear, we are not saying that because virtual currency is not legal tender VAT will automatically be due."

U.K. Weighs How to Tax Dealings in Bitcoin [WSJ]