¿Te worried about how to apply VAT when customers pay in Bitcoin? This merchant guide explains, step by step, how VAT applies to Bitcoin payments in the UK, what records are essential and how to report these transactions correctly to HMRC.
Key takeaways: what to know in 1 minute
- HMRC treats Bitcoin as a means of payment for VAT purposes: VAT is due on the supply of goods or services, priced in sterling, even when the customer pays in Bitcoin.
- Merchants must account for VAT in GBP at the time of supply: convert the BTC amount using a reliable exchange rate and record the source and timestamp.
- Payment processors simplify accounting but introduce fees and timing issues: choose a provider that issues GBP invoices and provides precise exchange-rate evidence.
- Input VAT on crypto-related expenses is recoverable where the expense is for taxable supplies: keep supplier invoices showing GBP VAT where applicable.
- Cross-border sales require place-of-supply analysis: B2B vs B2C and customer location change VAT treatment; use the established place-of-supply rules.
How HMRC treats Bitcoin for VAT purposes
HMRC guidance distinguishes between the supply of goods/services and the exchange of currencies. When a sale is made and the customer pays in Bitcoin, HMRC treats the transaction as a normal taxable supply where the consideration is the value of the goods or services in sterling. The act of paying with Bitcoin does not create a separate VATable supply of the cryptocurrency itself.
Key points:
- HMRC considers cryptoassets primarily as property or currency substitute depending on the context; for ordinary merchant sales using Bitcoin as payment, the VAT point is the supply of goods/services in the usual way. See HMRC pages on VAT and cryptoassets: HMRC VAT manuals.
- The exchange of BTC for GBP in a separate conversion operation (for instance, a customer exchanges BTC for GBP via a broker) may be outside the scope of VAT where it is a genuine exchange of currency-like assets; however, this does not change the merchant's obligation to account for VAT on the sale.
- For supplies where Bitcoin is the unit of account (rare), merchants must still determine sterling value for VAT reporting.
Example: a product priced at £100 is sold and paid in BTC. VAT at 20% applies to the £100, so the VAT due is £20; the BTC received must be converted to GBP at the supply time for reporting.
Charging VAT on Bitcoin payments: merchant responsibilities
Merchants accepting Bitcoin must follow the same VAT rules as for any other non-cash payment method, with extra emphasis on accurate conversion and documentary evidence.
Responsibilities include:
- Determine the VATable amount in GBP at the time of supply. Use a consistent, defensible exchange-rate source and timestamp (see next section).
- Apply the correct VAT rate (standard, reduced or zero) based on the goods/service supplied.
- Issue VAT invoices when required if the customer is VAT-registered and the supply is taxable. The invoice must show the amount in GBP and the VAT charged in GBP.
- Account for VAT on the VAT return in the relevant VAT period using the converted GBP figures.
- Record the exchange operation if BTC is converted to GBP later. Any gains or losses from conversion affect corporate tax or trading results, not VAT.
Practical considerations:
- If a merchant uses a third-party payment processor that accepts BTC and pays out GBP, the processor's documentation should show the BTC received, the exchange rate used and the GBP amount settled. This evidence supports the merchant's VAT records.
- If a merchant holds BTC and later converts it to GBP, the VAT due remains calculated on the sterling value at supply time; subsequent volatility does not change the original VAT liability.
Choosing an exchange-rate source and time of conversion
Select a reliable source (eg CoinGecko, CoinMarketCap or a tier-1 exchange such as Coinbase Pro, Kraken) and document the precise timestamp used for conversion. For stronger defensibility, use the rate shown on the payment processor's settlement report or an average of reputable exchanges at the supply time.
Practical rules of thumb:
- Prefer the payment processor’s rate when using a processor.
- Record UTC timestamps and a screenshot/CSV from the exchange or processor.
- Apply the same method consistently and document the policy in the merchant’s accounting manual.
Invoicing and record-keeping when accepting crypto payments
Accurate invoices and records are critical in the event of an HMRC enquiry. The invoice must reflect the taxable supply in GBP and include all standard VAT invoice requirements.
What to include on invoices:
- Supplier name, address and VAT registration number (if registered).
- Customer details if the sale requires an invoice (B2B supplies).
- Description of goods/services, quantity and unit price in GBP.
- Total consideration in GBP and VAT charged in GBP (the invoice may include a note stating the payment was received in BTC and showing the BTC amount and the exchange rate used).
- Invoice date which generally creates the VAT point.
Record-keeping requirements:
- Keep copies of payment processor settlement reports showing BTC amounts, exchange rates and GBP settlement values.
- Retain exchange screenshots or CSVs from the market source used for conversion.
- Keep internal policies showing how rates are chosen and time of supply is determined.
- HMRC standard retention: at least six years for VAT records.
Example invoice wording for BTC payment
Include a standard VAT invoice in GBP and add a small section such as:
"Payment received: 0.004321 BTC. Exchange rate used: 1 BTC = £23,150.00 (source: [exchange name], UTC 2026-01-15 10:12:45). GBP value of supply: £100.00. VAT (20%): £20.00. Total due: £120.00."
This approach keeps the legally required GBP figures clear while linking the invoice to the BTC evidence.
Input VAT can be reclaimed on business purchases used for taxable supplies in the usual way, whether the merchant paid in GBP or crypto, provided the supplier's invoice shows VAT in GBP and the purchase is for business purposes.
Key points:
- If a supplier charges and accounts for VAT (eg a UK cloud provider charging VAT in GBP), the merchant can reclaim input VAT subject to normal rules.
- If the merchant pays a supplier in BTC and the supplier does not issue GBP invoices showing VAT, reclaiming input VAT becomes difficult. The supplier must supply a valid VAT invoice in GBP for the purchaser to reclaim VAT.
- Fees charged by payment processors (conversion fees, settlement charges) are typically subject to VAT; keep processor invoices showing VAT in GBP where applicable.
Practical example:
- Merchant pays a UK consultant who invoices in GBP and charges VAT: reclaim as normal.
- Merchant pays a foreign supplier that invoices without VAT (B2B outside the UK): follow reverse charge rules where relevant and account accordingly.
Cross-border Bitcoin sales: place of supply and VAT rules
The VAT treatment depends on whether the supply is B2B or B2C and on the customer's location. The fact the customer pays in Bitcoin does not change place-of-supply rules.
Summary table:
| Supply type |
Place of supply |
VAT treatment |
| B2B goods exported outside UK |
Country of customer (export) |
Zero-rated if proof of export retained |
| B2B services to EU/overseas |
Customer location (reverse charge may apply) |
No UK VAT if customer liable under reverse charge |
| B2C digital services |
Customer location rules (MOSS / non-UK VAT rules) |
May need to register in customer country or use OSS |
Practical notes:
- For B2B supplies, obtain and retain the customer's VAT registration number and use evidence of their status when treating a supply as outside the scope of UK VAT.
- For B2C supplies, identify where the customer is located at the time of supply and apply local VAT rules. Payment in Bitcoin does not change the place-of-supply analysis.
Merchants should implement a repeatable process that integrates invoicing, exchange-rate evidence and VAT-return mapping.
Step-by-step checklist:
- Price goods/services in GBP and publish that price as the contractual amount.
- At the time of supply, convert BTC to GBP using a documented rate source and timestamp.
- Issue GBP invoices showing VAT in GBP and attach BTC settlement evidence.
- Record the sale and VAT in the accounting system for the VAT period when the supply occurs.
- Reconcile GBP bank settlements (if using a processor) to the original BTC receipts and account for processor fees and any foreign-exchange gains/losses separately for corporation tax purposes.
Mapping VAT return boxes for BTC payments (example)
- Box 1 (VAT due on sales and other outputs): include the GBP VAT on taxable supplies where customers paid in BTC.
- Box 6 (Total value of sales excluding VAT): include the sterling gross value of taxable supplies paid in BTC.
- Box 4 (VAT reclaimed on purchases): include recoverable input VAT backed by supplier invoices in GBP.
Accounting entries (simplified) when receiving BTC and converting to GBP
1) At time of supply (invoice raised):
- Debit: accounts receivable £120 (gross)
- Credit: sales £100
- Credit: VAT payable £20
2) When BTC received and converted to GBP via processor (settlement after fees):
- Debit: bank £116 (GBP settled after £4 processing fee)
- Debit: processing fee expense £4
- Credit: accounts receivable £120
If the merchant retains BTC and later converts at a different rate, record FX gain/loss in profit & loss; VAT remains as originally recorded.
- Choose platforms that provide automatic BTC → GBP conversion reports and exportable CSVs (eg Coinbase Commerce with settlement reports, BitPay with GBP settlement, or specialist accounting integrations such as CoinLedger, Koinly Business which integrate with Xero).
- Ensure the chosen tool can tag transactions with invoice numbers and output GBP values for VAT reporting.
Payment flow when accepting Bitcoin → GBP settlement
BTC payment flow for VAT reporting
🧾
1) Sale invoiced in GBP
Price displayed in sterling
💱
2) Customer pays in BTC
Record BTC amount & timestamp
🔎
3) Convert to GBP at supply time
Use documented rate
🏦
4) Settlement to bank
Record fees & reconcile
Advantages, risks and common mistakes
Benefits / when to accept Bitcoin ✅
- Broader customer reach: attracts crypto-native customers.
- Fast settlement if using instant on-chain or layer-2 solutions via processors.
- Competitive differentiation for merchants in tech or digital markets.
Errors to avoid / risks ⚠️
- Failing to document the exchange rate at the time of supply.
- Relying on BTC valuation at conversion rather than at supply when volatility occurs.
- Using a processor that does not provide clear GBP settlement evidence making HMRC enquiries harder.
- Mixing personal and business crypto wallets, which undermines audit trails.
Frequently asked questions
How does HMRC treat Bitcoin for VAT purposes?
HMRC treats sales paid in Bitcoin as normal supplies of goods or services; VAT is charged on the GBP value of the supply at the time of supply. Evidence of the conversion rate should be retained.
Can a merchant charge VAT in BTC directly?
VAT must be shown in GBP on invoices for UK VAT purposes. The merchant can disclose the BTC amount and exchange rate used, but VAT figures on the invoice must be sterling.
Which exchange rate should be used to convert BTC to GBP?
Use a consistent, reputable source: preferably the payment processor’s settled rate or an average from major exchanges at the supply timestamp. Document the policy.
What happens if the BTC value drops after the sale?
VAT liability remains based on the sterling value at the time of supply; subsequent BTC price movements may create accounting FX gains/losses but do not alter VAT recorded.
Are payment processor fees subject to VAT?
Often yes. UK-registered processors generally charge VAT on their fees; obtain their VAT invoices to reclaim input VAT where appropriate.
How should refunds or chargebacks be handled for BTC payments?
Issue a credit note in GBP and adjust VAT in the VAT return for the period when the refund occurs. Record the BTC reversal and the exchange rate used at refund time for reconciliation.
Do cross-border Bitcoin sales change VAT place-of-supply rules?
No. Place-of-supply rules depend on B2B/B2C and customer location. The payment currency (BTC) does not change the legal place of supply.
How long should BTC payment records be kept for VAT purposes?
Keep full records for at least six years, including invoices, exchange-rate evidence and payment processor settlement reports.
- Implement a written policy on exchange-rate sources and time-of-supply rules and store screenshots/CSV evidence for each BTC transaction.
- Choose a payment processor or accounting tool that outputs GBP settlement reports linked to invoices (verify VAT invoices from the processor).
- Reconcile BTC receipts with VAT returns each period and retain supporting documents for six years.