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UK VAT on Non-Fungible Tokens

Lack of definition puts uncertainty on UK VAT obligations for traders and marketplaces

The UK’s HMRC has yet to confirm the Value Added Tax status of Non-Fungible Tokens (NFT’s), blockchain certificates of digital and physical assets. Whilst cryptocurrencies, another type of crypto asset, has been exempted from VAT, NFT liabilities are still unclear.

The EU VAT Committee is reviewing VAT on cryptocurrency payment tokens. At the member state level, confirmation on Belgium Non-Fungible Token VAT and Spain VAT NFT has already been issued. New Zealand GST on NFT’s has also been confirmed.

HMRC cryptoassets manual silent

The 2021 HMRC Cryptoassets Manual is silent on the subject of NFT’s. It does confirm the 2015 guidance the digital currencies, like Bitcoin, are exempt from UK VAT. But this is because they are considered a means of payment without an intrinsic value – so a non-fiat currency. Their sale is therefore considered a means of payment and therefore VAT exempt financial services.

NFT’s are unlikely to be given this same benefit. Since they provide access to digital files (MP3, MP4, jpg and similar) via the internet, they will likely be considered a digital service. This would make them liable to UK VAT.

Sellers and facilitating marketplaces established in the UK would therefore have to consider their obligation to VAT register if over the UK threshold of £85,000 per annum. Non-established providers would have to register immediately and charge 20% VAT and submit quarterly UK VAT returns.

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