Yes, Ritchie gets the taxation of Bitcoin wrong

Sigh.

There is one good reason for Japan wanting to do this: it has come to the apparent conclusion that Bitcoin is a commodity used for speculative purposes and not primarily as a currency just as the UK has come to the reverse (incorrect, I think) conclusion.

Japan also wants to impose a tax after the collapse of two Bitcoin exchanges within days of each other leading to the loss of significant numbers of the supposedly always traceable currency, giving a lie to its supposed transparent quality for crime-beating purposes and to its merit as a regulation free zone. Tax, it is thought by Japan, would help impose that regulation.

It looks like HMRC made the wrong decision at the wrong time. There’s always time to reverse it.

Double sigh.

Here’s someone explaining what the UK and Japanese approaches to the taxation of Bitcoin are.

The use of Bitcoins in a transaction is treated just as any other method of payment for goods and services. If VAT or sales tax on the goods and services is due then it will be due whether people pay in Yen, Pounds or Bitcoin.

The purchase of Bitcoins themselves will not be subject to VAT or sales tax as purchases of Yen, Pounds or other variations of currency are not.

The mining or earning of Bitcoins is subject to exactly the same taxation as any other method of trying to accumulate pelf. Income minus costs equals profits that are then taxed at the appropriate rate for the vehicle which is used to do said earning. A sole trader is taxed as a sole trader, a corporation as a corporation.

The only interesting thing at all will be whether mining rigs, which tend to deteriorate in value from large to spit in about 3 months will be able to have some form of accelerated depreciation. Perhaps be written off in the first year.

And that’s it. And do note, the Japanese and UK taxation systems are exactly the fucking same on all of these points.

And how else did anyone think that Bitcoin was going to be taxed?

19 thoughts on “Yes, Ritchie gets the taxation of Bitcoin wrong”

  1. “And how else did anyone think that Bitcoin was going to be taxed?”

    Interestingly Ritchie doesn’t seem to have offered any solution to that question, other than to say HMRC has got it all wrong.

    Curious that.

  2. Well there is more than one possible way for it to be taxed, and we have a precedent. In the UK, there is no VAT on the purchase of gold coins; but there is VAT on silver. Should Bitcoin be treated like gold or like silver?

    Given the ease of moving Bitcoin transactions to other jurisdictions, the only practical solution is not to tax it at all.

  3. Really surprised he hasn’t worked his way to demanding possession of BitCoins is illegal.
    Ample precedent for him.
    Cuba’s foreign currency legislation.

  4. “…of the supposedly always traceable currency”

    I thought one of Bitcoin’s main selling points was that it isn’t traceable?!

    If it’s traceable I guess it’ll be easy to track down where the missing Mt. Gox Bitcoins are then…

  5. On the depreciation point: you could make a short life asset election in respect of a mining rig, which would mean that the rig is treated as a separate asset for capital allowances purposes. When you sell or scrap it, the allowances you’ve claimed to date are trued up to equal the cost to you, less any proceeds of disposal.

    If the rig has a life of only a few months and is then scrapped at nil value, you’d therefore effectively get 100% relief in year one.

  6. Slagging Ritchie off aside, I actually hope his theory cones to fruition. It suddenly becomes economically viable to buy a PC and become a bitcoin miner, then trade bitcoins in the same business if my potential losses can be set against the rest of my tax bill.

    Rare that el Murphy suggests providing tax incentives for renter activity.

  7. Bloke in Spain

    I remember reading something from him about potentially eliminating its use, at least if it can’t be traced- Google ‘Tax Reseach uk – bitcoin’ and it’s Fifth entry down- post from 21st January: Justification from the Lord High Tax Denouncer was thus:

    ‘HMRC is reported to be reviewing the tax status of the Bitcoin. So it should. But not, I suggest, to make it a legal tender, as seems likely, but to make sure its use as tender can either be traced or its use is made illegal.’

    And the reason for that is the threat it poses to the ‘Curajus State’:

    ‘This ‘currency’ appears to be designed to facilitate what some call freedom, but that freedom is designed to be beyond the law. The price for all of us could be very high indeed. Seen in this way the Bitcoin is not about economic liberation, it’s about the destruction of the state. And unless it’s held to account now we need to be very worried.’

  8. That’s slightly at odds with his new description of himself as a libertarian….

    Which is rather more than slight at odds with anything substantive he has written or said. The concept of the LHTD as anything other than a deluded, economically ignorant, statist leftist shill is rather well embedded in his publications, (thankfully increasingly rare) television appearances and in the causes he champions. He’s about as libertarian as Beria. Although slightly less dead.

  9. @GlenDorran and @Surreptitious Evil

    It’s a classic case of delusion, as seen in his Twitterstorm at the OCBT last week – he also claims to be ‘a democrat’, something which even 15 minutes on Google will reveal as a sham. Perhaps we should be more sympathetic, though, after all:

    ‘Right now a great many are trying to abuse this policy and I am working at the limits of my physical capability.

    I will be hitting the delete button very hard on the next few weeks, without any compunction at all. There are ample numbers of blogs available promoting the falsehoods of the right: there is no need for them to appear here as well.’

  10. As noted above I know nothing about Bitcoin but I can follow a logical argument and have a fair but if financial knowledge. Andrew Jackson has completely (and politely and civilly) destroyed Ritchie’s argument in that Bitcoin/Japan piece.

    Ritchie’s response to Andrew’s final point?

    “This comment has been posted further to point 5 of the comments policy to which attention is drawn.”

    Why doesn’t he just call his mum to tell the big boys to stop bullying him?

    It’s no wonder that he never appears at open forums where he can’t shut down any form of debate.

  11. It wasn’t my final point, actually – I think he’s deleted my last post there, though I can’t be sure as things seem to disappear and reappear sometimes.

    It was about his response to Stephen Hyde saying his headline was misleading. Basically, I pointed out that headlines aren’t that hard: all you need here is something like “Japan agrees with the UK that bitcoin actvity is taxable”, and that the only person looking for ways to abuse things was him. I don’t think he liked that 🙂

    The last point did strike me as a bit Mary Whitehouse – he’s so set on looking for things that could be abused, he’s seeing objectionable material where everyone else sees perfectly ordinary day-to-day stuff 🙂

  12. @Pellinor

    I’m really getting into the idea of comparing him to various historical figures. With his paranoia level, certainly he’s like a parody of either Joe Mccarthy or Matthew Hopkins – didn’t realize you’d dropped the moniker on TRUK – but he at least appeared vaguely civil in the opening exchanges – however as the superb @GlenDorran points out, the stock response ‘Section 5 of the Comments policy’ really makes him look about 9 years old.

    To that end, Glen – you’re absolutely right that he will only appear in selected forums either where the right of reply is limited or non-existent or where the audience is of like -minded individuals and acts like an echo chamber. To attempt to defend his positions in open debate would expose his true personality, intemperate, intolerant and more than a little sad. Truly a terrifying symbol of the degeneration of intellectual debate in our time…..

  13. Only just read the pando article. One point, if the mining rigs do indeed burn out after 3 months, you’d justifiably claim them as a revenue expense so capital allowances/depreciation wouldn’t be in point per se, although you’d likely have a job proving the argument to an inspector in an enquiry.

  14. I dropped “Pellinor” on his site when he revised his comments policy to say he didn’t like pseudonyms. Fair enough: I’ve used Pellinor online for 20 years, but his house his rules, and all that.

    This came back to bite me when I accidentally posted as Pellinor during a discussion (must have been the laptop remembering the old details – I don’t normally post on that) and he took that as a sort of “Aha! Sockpuppeting!”, when in fact all I’d done was read and follow his comments policy…

    Poor chap. It must be terribly stressful being on edge all the time like that. It’d be nice if he could just chill out occasionally.

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