Implication of Limited Co owning some Bitcoins

[titan]

You are mistaking fact for an 'opinion'. Bitcoins are at a peak against the GBP. They've only been higher once in early 2013 and that was only a gnats chuff higher than now.
I'm intrigued what makes you think a tenfold increase is possible? Please explain?

I know very well their price history and also that there are now at all time high against GBP. But it is not past price movement or technicals that is the basis for my 10X upside assumption.

I am bullish on bitcoin because they combine the twin values of scarcity (the number of bitcoins in circulation will never exceed 21 million) and easy transaction capability. These twin features are not found in any other asset class as of date. Gold is scarce but not vey useful in carrying out transactions (try buying a loaf of bread with gold or convert gold to cash with ease). Cash provides easy transactions but is anything but scarce. In fact governments can print as much cash as they want. This is why Bitcoin is unique in having both the above desirable features.

Now the total value of gold (which is considered a safe haven asset) in the world is $ 7 trillion. I am totally optimistic that over few years, it is entirely likely that 2% of this value might move into Bitcoin. So Bitcoin should have a market cap of $ 140 billion. Divide this by 21 million and you get a figure of $6666 per Bitcoin (or roughly £5500).

That is roughly how I get my 10X figure (well less now as the price touched £800 today).

It is ofcourse possible that we may see lower prices in the interim but equally the price could run away upwards. And I am prepared to live with the former temporarily than be left with the boat that really sailed away..

[filthy1980]

whatever the issues with buying BTC through ltd, I wouldn't buy them right now, a lot of the stuff I'm reading seems to suggest that the sudden end of year spike is largely related to china / india currency instability, I would expect it to head back down to £400/£500 per BTC in the new year, still good price (I bought a couple @ £240 ish) although I tried to cash in the other day and it proved a little more difficult then I thought it would have been

long term though I do think they will sky rocket as they become more mainstream and more merchants begin to accept them

but agree I would probably purchase personally, much less hassle

[Lance]

Implication of Limited Co owning some Bitcoins

You are mistaking fact for an 'opinion'. Bitcoins are at a peak against the GBP. They've only been higher once in early 2013 and that was only a gnats chuff higher than now.
I'm intrigued what makes you think a tenfold increase is possible? Please explain?

As for legality... other posters have answered very well, but I would add that without a safe place to store the coins that is insured there may be other potential legal issues. One example would be if £100k of bitcoins were 'hacked' from you, how would your tax liability be affected. HMRC are not likely to just write off nearly £40k of possible income tax on your say so. It would be difficult for you to prove you've not just trousered the coins, and without an easily provable audit trail I reckon you'd be liable for the HMRC losses. So you should consider whether it is a reasonable investment due to these risks.

Of course if it is going to increase tenfold then your best bet would be to do it personally so you don't have to pay profits to HMRC. They'd struggle to tax your personal bitcoins due to the inherent secrecy.

[ASB]

Subject to your articles the company can invest in whatever it sees fit.

There may be an official hmrc rate for valuation and gains are taxable. Losses may be allowable. If the value is significant then it may make the co an investment company with consequences on taxation rates.

Ultimately they are just an asset on the balance sheet.

[titan]

That boat sailed.
Buying Bitcoins now (when they are expensive) would be a pretty flawed plan.

We all have our opinions. I, on my part, am fairly convinced that the gains seen so far will seem minuscule when bitcoins actually become mainstream (meaning I am optimistic of possible upsides of the order of at least 10X). I am conscious though that the timeframe for this is uncertain (but I think we could see this within 5 years).

Anyway, my question now is that if I want my Limited Co to hold bitcoins (while not actually having any use of bitcoins for my regular gig related work), is this something I can get questioned about be it by my bank, HMRC or any other authority? Would it not suffice to just say that the company invested in bitcoin because it took a view that doing so would help it manage the cash balance?

[Jessica@WhiteFieldTax]

Hmm - it might be worth a little more thought and investigation. Do you have a legitimate business reason to hold funds in bitcoins (or any other currency)? If not then you might be deemed to be involved in speculative investment transactions which is probably not in your company's articles of association or the business activity you registered it for. Of course if your business does have a frequent need to make payments in bitcoin then that would be different. If it is anything more than petty cash then you should get some proper advice.

I think the point is bitcoins are treated like any other currency rather than an investment.

Excess holding of any currency could compromise trading status, as could frequent swaps or speculative trading without commercial nexus, but the tax system is blind to the actual currency viz gbp/usd/bitcoin etc.

Of course, just because there is no tax concern, doesn't mean it's a sound ideal commercially.

[Lance]

Increasingly seems like having some % of the warchest in the form of Bitcoins may be a good investment as well as hedge against inflation. Any opinions about the implications of doing so from the point of view of taxation?

That boat sailed.
Buying Bitcoins now (when they are expensive) would be a pretty flawed plan. If you'd bought them on Jun 22nd you'd be laughing, but you didn't.

My recommendation for currency at the moment is USD. But that also would have been better if you'd bought 3 weeks ago before the fed raised interested rates.

Bitcoins are inherently unstable and only really any use if your main currency is less stable (like the GBP in Jun/July) so should be considered a very high risk currency. Especially as the people who might buy them are few and far between (so you end up losing big time at trading time). If of course you plan on buying illegal pharmaceuticals or guns, or intend to have someone beaten up or killed then fill yer boots.
If not then keep it in GBP (which are low at the moment so may well be a good currency to invest in).

[TheCyclingProgrammer]

I think if the company made wholesale investments in Bitcoins, then it would cease to qualify for Entrepreneurs Relief if it becomes wound up in the future, so you'd pay full whack Capital Gains Tax.

Maybe, maybe not. Could the potential gains outweigh the ER saving? Will ER even be an option for us on a few years time? Who knows...

[chopper]

I think if the company made wholesale investments in Bitcoins, then it would cease to qualify for Entrepreneurs Relief if it becomes wound up in the future, so you'd pay full whack Capital Gains Tax.

[handyandy]

I would concur with the article in Taxation. Treat it as a currency and run exchange losses / gains through P&L. These could be computed annually or more frequently according to your accounting procedures. The author of the article mentions "loan relationship rules" - these are (a) wider than just loans and (b) absurdly complex, but long story short, running the gain / loss through P&L, with no other special treatment, should suffice in almost all cases.

Hmm - it might be worth a little more thought and investigation. Do you have a legitimate business reason to hold funds in bitcoins (or any other currency)? If not then you might be deemed to be involved in speculative investment transactions which is probably not in your company's articles of association or the business activity you registered it for. Of course if your business does have a frequent need to make payments in bitcoin then that would be different. If it is anything more than petty cash then you should get some proper advice.

[Jessica@WhiteFieldTax]

I would concur with the article in Taxation. Treat it as a currency and run exchange losses / gains through P&L. These could be computed annually or more frequently according to your accounting procedures. The author of the article mentions "loan relationship rules" - these are (a) wider than just loans and (b) absurdly complex, but long story short, running the gain / loss through P&L, with no other special treatment, should suffice in almost all cases.

[titan]

Increasingly seems like having some % of the warchest in the form of Bitcoins may be a good investment as well as hedge against inflation. Any opinions about the implications of doing so from the point of view of taxation?

My understanding from https://www.taxation.co.uk/Articles/...yptic-currency is that yearly gains / losses (which would be based on the valuation at the period end date) would be subject to corporate taxation.

Anyone else thought about this?