Tax authorities are often slow to catch up with new or quickly moving technologies, which creates uncertainty, particularly for embryonic or developing businesses.
One area that fits this description is crypto.
Most major tax authorities, including HMRC, have focused on the general tax position of crypto related transactions, but they haven’t until recently given much thought to the VAT treatment of crypto transactions, other than to issue vague guidance along the lines that crypto transactions should generally be treated as VAT exempt, if not outside the scope of VAT.
However, a caveat to this is that where crypto currencies are used as payment, HMRC have stated that the underlying transaction will still follow normal VAT rules that apply to the supply of goods or services.
This is as expected, but what about where the underlying transaction is something new that has only developed in the ‘metaverse,’ e.g. NFTs.
This appears to be an area that tax authorities are considering more closely now, with recent announcements on the VAT treatment of NFTs from the Spanish and Belgian tax authorities. It is notable that both have concluded that the minting and secondary sale of NFTs both qualify as electronic services, subject to VAT at the standard rate.
This is something that we had anticipated, although neither Spain nor Belgium appears to have addressed the main difficulty with this analysis, namely identifying the location of the ‘customer.’ This is essential to the effectiveness of the measure, with the supply of electronic services considered to occur where the customer belongs for VAT purposes.
This is something we have been in discussions with HMRC on for a considerable time and we have now received VAT rulings for a number of clients.
The rulings are favourable (no UK VAT payable on NFT transactions), although the treatment that we have ultimately agreed with HMRC departs from the policies announced by Spain and Belgium.
It should also be noted that HMRC have not issued any formal guidance in relation to the VAT treatment of NFTs and each of the rulings obtained can only be relied on by the client to which the ruling applies, and although those businesses or individuals who have obtained a ruling from HMRC will be able to rely on this until such time HMRC publish alternative guidance, the same cannot be said for those who have not obtained a ruling.
Although the rulings we have obtained are specific to each client’s circumstances, we are confident that we will be able to obtain similar rulings for other clients.
If you would like to discuss further, please contact us or contact Keith Miller, our Associate VAT Director.
