HMRC has proposed the following treatment for Bitcoin related transactions:
Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received.
Income received by miners for other activities, such as the provision of services in connection with the verification of specific transactions for which specific charges are made will be exempt from VAT.
When Bitcoin is exchanged for Sterling or foreign currencies e.g. Euros or Dollars no VAT will be due on the value of the Bitcoins themselves.
However VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin of other similar crypto-currency. The value of the supply of goods or services on which Vat is due will be the Sterling value or the crypto-currency at the point the transaction takes place.