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They also from my reading misunderstand VAT. If they bought BC at £1 and sold at £1.20, then the VAT would be effectively only on £0.20 as they could claim back the VAT from the purchase when they sold. VAT would only scupper them if they were selling BC they had mined themselves, but their talk of trying to set up a bank makes it sound like this isn't the case.

They can only reclaim the VAT on BTC they bought IF THEY WERE CHARGED VAT ON THEM. They won't be charged VAT on them in 99% of cases because sellers are individuals.

They buy bitcoin at £1.

They add a markup of 5%, taking it to £1.05

Then they add 20% vat, taking it to £1.26

The final customer pays the VAT, which is collected from the OP. They reclaim VAT on things they buy, not things they sell.

This has always confused me - maybe somebody can help me.

I still don't understand how just re-selling something at a profit is 'adding value' in VAT terms. I thought the 'value' added was not monetary but actually doing something to the product(s) to make them more valuable.


The terminology is based around the traditional business model of physical goods. Buy stuff, put them together, sell the result. You reclaim the VAT on your purchases, and charge VAT on your sales. Thus the net VAT you collect is on the "value added". But you collect and your customer pays the full (eg. 20%) on the full sale amount, since he's paying for the complete value added all the way down the supply chain.

This is effectively the same as a sales tax; just the mechanism for collection is different.

For service-orientated businesses, the mechanism is the same; the terminology just makes less direct sense. In general, a business still get to reclaim all the VAT it pays on stuff it buys, and must charge VAT on all the stuff it sells.

With a 20% VAT rate, I buy something at 1.20 (1 + 0.20 VAT). So in effect I paid 0.20 as tax. Then I sell it at 1.80 (1.50 + 0.30 VAT). So I have collected 0.30 as tax. But I do not pass on all of the 0.30 tax to the government, I subtract the 0.20 I have already paid as VAT, and give the government 0.10. In effect, the consumer has paid the 0.30 VAT on the final price of 1.50 excluding VAT.

I find the definitions in the investopedia link you provided very confusing.

Well explained.

Essentially becoming VAT registered turns you into a tax collector :-)

Money is an expression or a carrier of value.

If you do something to the product, that only adds value when you sell it for more than it was worth before.

Adding value to something can be as simple as buying it in a time when no one needs it, and selling it when everyone wants it. Basically you added value by carrying risk or storing the asset.

Distribution is value as well - for example, it's quite clear (and traditional) that wholesalers and retailers add value to product, i.e., a shirt in a store near you where you can try it on is worth much more than the exact same shirt in a container coming out of the factory. But technically, it's exactly the same as simply reselling something at a profit.

In essence, the unstated assumption is that if you bought it at $1 then it had a value of $1; and if you sell it at $2 then you added value, and we don't need to know how that value was added. Did you improve the item itself? Did you move the item where it was needed more? Did you offer it to customers who weren't served by others? Did you advertise&market the item to make it more attractive? These all are valid means of adding value.

Yes, so they reclaim VAT on the bitcoins they bought for £1 (and paid £1.20 for including the VAT).

Firstly they have to be charged VAT to reclaim it, you can't just claim money back from HMRC that was never paid to HMRC in the first place.

Assuming you found a company selling Bitcoins and charged VAT you'd pay £1.20 but claim 20p back from HMRC therefore the total cost would be £1.

Then same same calculation that is in the post you replied to applies. The customer would end up having to pay £1.26 of which ~21p would be payable to HMRC, leaving you with ~6p profit. But who is going to pay £1.26 for bitcoins when you can buy them for £1.05 elsewhere? If the UK based company sold them for £1.05 they'd be losing money every time they sold them due to the VAT they'd owe to HMRC.

I had a read through the Revenue's guidelines, and it looks to me as if he would be exempt from VAT, because it's just FX:

  A supplier of an exempt intermediary service is a person who:
    - brings together a person seeking a financial service with a person who provides a financial service
    - stands between the parties to a contract and acts in an intermediary capacity, and
    - undertakes work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed.
all three of those apply (but IANATaxAdvisor)

Yes, if you only mediate between buyer and seller then you don't need to pay vat. However if he was to do the trading himself (buy from one person, sell to another), then that provision does not apply.

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