VAT on Cryptoassets: HMRC’s New Guidance for Crypto Businesses

VAT on cryptoassets can create significant tax liabilities for businesses selling tokens, operating NFT marketplaces or providing blockchain-based services. HMRC's new guidance makes it clear that accepting cryptocurrency, using smart contracts or operating through a decentralised platform does not remove a business's VAT obligations.

On 15 October 2026 HMRC published Guidelines for Compliance GfC21 and subsequently updated iton 21 October 2026. However these are not new VAT rules. 

The guidance addresses problems crypto businesses encounter when identifying the underlying supply, establishing customer locations and determining whether a marketplace or the original seller must account for VAT.

For founders, the consequences can be substantial. A token launch may generate an unexpected VAT liability. An NFT marketplace may be responsible for VAT on transactions where it receives only a commission. A crypto exchange may be unable to recover all the VAT incurred on it's operating costs.

Importantly, HMRC has not introduced a new VAT regime for crypto transactions. GfC21 clarifies how VAT on crypto and digital transactions is applied within the existing legislative framework. We examine the guidance and the practical steps founders should take.

When Does Your Crypto Business Need to Charge VAT?

There is no single VAT treatment that applies to every crypto or token transaction. For crypto businesses, the VAT position depends on what is actually being supplied to the customer, rather than the type of token involved or the crypto used for payment

A token granting access to software may have a different VAT treatment from a cryptocurrency exchange transaction or an NFT linked to digital artwork. A token representing rights over a physical asset requires its own analysis.

The nature of the supply determines whether the business needs to charge VAT, whether an exemption applies and how much input VAT it can recover. The underlying rights and commercial arrangements are more important than labels such as utility token, NFT or cryptocurrency.

Consider the following examples:

Accepting payment in crypto does not change the VAT treatment of the goods or services your business sells.

Cryptocurrency Exchanges and the Financial Services VAT Exemption

HMRC generally treats the exchange of crypto for traditional currency, and vice versa, as exempt where the relevant financial services exemption applies. A qualifying exchange may therefore charge no VAT on its exchange commissions. However, the downside is that VAT exemption can restrict recovery of VAT on expenditure.

A UK exchange might incur £100,000 of qualifying development and operating expenditure plus £20,000 VAT. If those costs relate entirely to exempt supplies, the £20,000 may be irrecoverable, subject to partial exemption rules and relevant exceptions. That is a real cost in the company's forecasts.

An crypto exchange may also sell premium software subscriptions, technical services or account features. Those revenue streams do not automatically fall within the VAT exemption. Where the company makes taxable and exempt supplies, it may need a partial exemption calculation to establish its input VAT recovery.

For mixed-activity exchanges, direct attribution of costs and residual overhead allocation should be considered alongside the partial exemption de minimis rules. A business should not assume that VAT on development expenditure is recoverable simply because the platform will eventually have taxable subscription revenue. The intended use of the expenditure and the evidence available at the time are relevant.

The Impact of VAT Exemption on Crypto Exchanges

We would recommend examining every revenue stream before determining the VAT position. Exempt exchange activity can reduce output VAT while increasing operating costs. Additionally, you should review whether additional services are separate supplies and whether partial exemption applies. Founders raising investment should build realistic irrecoverable VAT costs into their forecasts.

VAT on Cryptoassets: How Are NFT Sales and Token Holder Benefits Taxed?

For businesses launching NFT collections, the VAT treatment depends on what purchasers receive, not the fact that ownership is recorded on a blockchain. An NFT can represent digital artwork, access to software, an event entitlement, rights over physical property or a package of benefits. 

The token itself does not determine whether a sale is standard-rated, exempt or outside the scope of UK VAT.

The Practical Problem of Establishing Where NFT Buyers Live

One of the biggest practical challenges for NFT businesses is establishing where their customers are located.

Many NFT buyers value privacy and prefer to interact with blockchain platforms using only their wallet addresses. In some cases, a customer can connect a wallet, purchase an NFT and receive the token without providing their name, residential address or any other identifying information.

This creates a problem for businesses selling NFTs that qualify as electronically supplied services.

For these supplies, the customer's location will generally determine where VAT is due. A UK NFT business needs to establish whether a buyer is located in the UK, the EU or another jurisdiction before it can determine the correct VAT treatment.

However, a blockchain wallet address does not identify where its owner normally lives.

Neither does the crypto used for payment. A transaction involving ETH or USDC provides no reliable indication of the customer's country of residence.

Even where the business can identify an IP address, that information may not be conclusive. Crypto users frequently use VPNs, privacy tools and other services that can obscure their apparent location.

HMRC generally expects suppliers of relevant cross-border digital services to retain two pieces of evidence supporting the customer's location, subject to the applicable presumptions and simplifications.

This can include billing information, IP addresses and other commercially relevant evidence. However, the business must assess whether the information is reliable and consistent.

Although the company has a complete record of the blockchain transactions, it cannot establish how many purchasers were UK consumers, EU consumers or customers elsewhere.

It therefore lacks the information needed to support the VAT treatment of the sales.

The business cannot simply assume that all purchasers were outside the UK because they used cryptocurrency. Equally, it should not assume that every transaction is automatically subject to UK VAT.

Instead, it needs to examine the available evidence, the applicable place-of-supply rules and whether any relevant presumptions can be applied.

Where reliable customer-location evidence cannot be obtained, the business may face difficulties supporting its VAT treatment during an HMRC enquiry.

How Can NFT Businesses Address This Without Undermining Customer Privacy?

For founders, the challenge is to collect sufficient information for VAT compliance without unnecessarily compromising the privacy-focused experience their customers expect.

Possible approaches include:

Businesses should also consider their data protection obligations and collect only the information reasonably necessary for the relevant purpose.

A customer does not necessarily need to provide extensive personal information simply because they purchase an NFT. However, a completely anonymous checkout process may not provide the evidence required to support the VAT treatment.

The Commercial Implications for NFT Founders

For NFT projects, this is more than a record-keeping issue. Requiring additional information during minting can create friction in the customer journey. Some buyers may abandon a purchase if they are asked to provide personal details that they would not normally disclose when interacting with a decentralised platform.

Conversely, allowing completely anonymous purchases may leave the business unable to demonstrate that it has applied the correct VAT treatment

The solution will depend on how the project operates, the rights attached to its NFTs and whether sales take place directly or through a marketplace

Our view is that customer-location requirements should be considered when designing the minting process, rather than after the collection has sold out

A privacy-conscious checkout can still incorporate appropriate VAT controls. However, founders need to establish what evidence is required and how their systems will retain it before accepting customer payments.

NFTs Representing Digital Artwork

Where an NFT gives the customer digital artwork delivered automatically online, the transaction may constitute an electronically supplied service. For direct sales to consumers, the place of supply will generally be where the customer normally lives. 

A UK seller must therefore determine UK buyers from overseas buyers and consider any overseas VAT obligations, including the EU rules for digital services.

Payment in ETH, USDC or another cryptocurrency does not alter the place-of-supply rules. The business must determine the sterling value of the consideration at the relevant tax point and retain sufficient records to explain its calculation.

NFTs Providing Membership, Software Access and Physical Benefits

A token may unlock software features, a private online community, future digital content, event tickets or merchandise. Your business needs to analyse the rights promised in the terms of sale. 

Online access can be a digital service, whilst admission to a physical event or delivery of goods can engage different VAT rules.

A collection combining several benefits also raises the question of whether the business makes one composite supply or multiple independent supplies. If a principal element and ancillary elements form one supply, they may follow a single VAT treatment. 

Where elements are economically independent, separate treatment may be required. The answer depends on what the typical customer is buying and how the package operates, not merely on how the project labels its perks.

Ongoing NFT Benefits and the VAT Tax Point

Some NFTs give holders access to benefits for months or years after minting. Founders should establish whether the original price buys a defined package of rights or whether further supplies arise when customers pay for additional features. 

The VAT tax point depends on the supply and payment arrangements; ongoing access does not automatically create a fresh VAT charge every time a holder logs in.

Where a token promises future goods or services, the drafting of those entitlements and the certainty of what is being supplied may affect when VAT becomes due. These questions should be resolved before launch, especially where revenue is received well before benefits are delivered.

Secondary NFT Sales and Creator Royalties

Secondary sales can create a separate revenue stream for the original creator. A smart contract might direct 5% of each resale to the project. The business must establish why it receives that payment and whether it is consideration for an identifiable supply, such as licensing intellectual property, or arises under a different arrangement.

Calling the receipt a royalty does not automatically determine its VAT liability. The contractual rights, identity of the recipient of any service and applicable place-of-supply rules must be considered. HMRC’s GfC21 guidance does not give a universal VAT answer for every secondary-market royalty arrangement.

VAT Exposure When Launching an NFT Collection

It's important to examine the token rights, customer terms, checkout process and planned markets before a mint. Additionally, you need to establish whether the issuer or marketplace accounts for VAT, what location evidence is collected and how ETH receipts are translated into sterling. 

Founders can then build realistic VAT assumptions into their pricing and treasury forecasts rather than discovering a liability after the collection has sold out.

Founders can then build realistic VAT assumptions into their pricing and treasury forecasts rather than discovering a liability after the collection has sold out.

Founders can then build realistic VAT assumptions into their pricing and treasury forecasts rather than discovering a liability after the collection has sold out.

Founders can then build realistic VAT assumptions into their pricing and treasury forecasts rather than discovering a liability after the collection has sold out.

Selling Cryptoassets and Digital Services to Overseas Customers

Many UK crypto businesses sell internationally from day one. However, VAT depends on the nature of the supply and whether the customer is a business or consumer, not simply the location of the blockchain or payment wallet.

Sales to Individual Consumers

For electronically supplied services, the place of supply is generally where the consumer normally lives.

A UK company selling token-gated access to an online gaming platform to consumers in Germany, France and Spain must consider EU VAT rules. It may be able to use the non-Union One Stop Shop scheme instead of separate registrations in every relevant EU member state, but still needs to identify the customer's location and apply the correct rate.

A sale outside the scope of UK VAT is not necessarily free of VAT in the customer's country.

Sales to Overseas Businesses

The general business-to-business place-of-supply rule normally places services where the business customer belongs. A UK blockchain development company supplying software development to a US business may therefore make a supply outside the scope of UK VAT.

Where a UK supplier provides services to an overseas business, the customer’s contractual identity and establishment are important. A group may have entities in several countries; the relevant recipient is not necessarily the entity that pays the invoice

 For certain services, use-and-enjoyment rules can override the general position, so businesses should review what is actually supplied and where it is effectively used.

The supplier must retain evidence of the customer's business status and location. Special place-of-supply provisions, including use-and-enjoyment rules for certain services, may change the outcome. HMRC's October update to GfC21 clarified aspects of cross-border B2B supplies.

What if Your Overseas Customer Is Not VAT Registered?

Some early-stage crypto businesses have no VAT number. Other evidence may establish business status, including registration documents, commercial contracts and business websites. The supplier must make a reasonable assessment: selecting 'business' at checkout does not necessarily provide adequate support.

Establishing Customer Status for International Crypto Sales

You should review onboarding data, customer status, location evidence and overseas VAT exposure. You should also assess whether direct sales or a merchant-of-record arrangement better suits the business. These choices can affect tax obligations and the administrative burden of international expansion.

Why Crypto Wallet Records Alone Cannot Satisfy VAT Requirements

Blockchain records can show wallet addresses, token transfers, amounts and timestamps. They generally cannot identify where a customer lives or whether the purchaser acts as a business.

A crypto business may need records of customer status and location, what was supplied, the sterling value, the VAT treatment and who is responsible for accounting for VAT. 

For relevant cross-border digital services, HMRC generally expects two pieces of customer-location evidence, subject to applicable presumptions and simplifications. Billing details and IP addresses are possible sources of evidence.

For consumer digital services, evidence may include billing addresses, bank or payment details, IP addresses and other commercially relevant information, subject to the applicable evidential rules and presumptions. 

A wallet address or a blockchain explorer export generally does not establish customer residence. If data is inconsistent, the business should have a documented process for resolving the discrepancy before determining the VAT treatment.

Designing VAT-Compliant Crypto Payment Records

It's important to examine the information captured by the platform and how it reaches your accounting system. For decentralised applications, customer data collection can be technically challenging, but obligations depend on the actual supply and the party responsible for VAT. 

Founders should design recordkeeping procedures that are integrated with their product rather than attempt to reconstruct it after launch.

Who Accounts for VAT on NFT Marketplace Sales?

NFT marketplaces may be responsible for VAT on the full value of qualifying sales even where they receive only a commission. Under the rules for electronically supplied services, a platform taking part in a supply may be treated as acting in its own name.

Relevant factors include who authorises the customer charge, who authorises delivery, who sets the general terms and conditions, and whether the original supplier is identified in the required documentation. Smart-contract payment routing does not decide the VAT treatment.

Under the digital-platform presumption, a platform taking part in an electronically supplied service may be treated as acting in its own name but on behalf of the underlying provider. Rebutting that presumption requires more than describing the artist as the supplier in a contract. 

Importantly the relevant documentation must identify the supplier and the platform must not authorise the charge, authorise delivery or set the general terms and conditions of the supply.

Payment Processors and Crypto Payment Gateways

Merely processing payments does not automatically make a gateway the supplier of the digital asset. Its actual functions still need review: additional marketplace activities may change the analysis.

Marketplace Liability and the Commercial Terms

The VAT treatment of NFT marketplace transactions depends on both the contractual arrangements and how sales operate in practice. Describing a platform as an intermediary does not necessarily prevent it from being treated as the supplier where it controls the terms of sale, authorises payment or determines delivery

This can have significant financial implications. A marketplace retaining a 5% commission may still be responsible for accounting for VAT on the full value of qualifying NFT sales, rather than just its commission

Marketplace operators therefore need to understand their VAT responsibilities when establishing commission structures, checkout processes and contractual terms, particularly where VAT liabilities could substantially exceed the fees they retain.

Which Crypto Transactions Count Towards the £90,000 VAT Registration Threshold?

The current UK VAT registration threshold is £90,000 of taxable turnover on a rolling 12-month basis, with a separate forward-looking test. Not every wallet receipt or transfer counts as taxable turnover.

A company may receive investment funds, move tokens between its own wallets, exchange crypto, sell subscriptions and earn marketplace commissions. These activities need individual analysis. 

Own-wallet transfers do not ordinarily represent customer supplies. Investment funding is not automatically consideration for a taxable supply, although token fundraising rights require examination.

Exempt supplies generally do not count towards the normal taxable turnover threshold. Overseas supplies may also affect registration and input VAT recovery depending on their nature and place of supply.

The £90,000 test concerns UK taxable turnover, not simply global wallet inflows. Supplies outside the scope of UK VAT, exempt exchange activity and transactions that are not supplies should not be indiscriminately added together. 

Businesses with overseas digital sales may nevertheless have separate overseas registration requirements and should review how those supplies affect UK input tax recovery.

What Wallet Activity Tells Us About VAT Turnover

The value of crypto received into a wallet does not necessarily represent taxable turnover for VAT registration purposes. The nature of each transaction determines whether it counts towards the £90,000 threshold

For example, an NFT marketplace may facilitate millions of pounds in sales while retaining only a small percentage in fees. However, where the marketplace is treated as the supplier under the VAT platform rules, the full value of qualifying sales may need to be taken into account

Similarly, funds raised through a token launch do not automatically constitute taxable turnover. The VAT treatment depends on the rights and benefits attached to the tokens and whether their issue represents a supply of goods or services for consideration.

How Does VAT Apply to Staking, Mining, DeFi and Airdrops?

HMRC's guidance does not provide a complete answer for every decentralised finance structure. Staking, mining, liquidity provision and token incentives can involve very different arrangements. VAT analysis starts with whether an identifiable supply is made for consideration, who receives it and where it takes place.

Staking Rewards

A company receiving staking rewards must consider whether it provides an identifiable service in exchange. The outcome depends on the protocol, any counterparty and the commercial terms. There is no universal VAT treatment for every staking arrangement.

Mining Activities

Mining rewards arising from network participation without an identifiable service recipient may differ from fees earned under a specific commercial agreement. Transaction fees may need separate analysis.

Liquidity Provision and DeFi

Where liquidity providers receive protocol fees, the existence of an identifiable service recipient and a direct link between service and consideration are central questions. The legal structure of a protocol, any intermediary and the nature of the rights received can change the analysis. A generic rule that all DeFi yield is VAT-exempt would be unsafe.

Liquidity providers may receive fees, rewards or tokens. The company needs to establish whether these are consideration for a supply, the nature of any service and whether an exemption applies. Identifying the recipient can be difficult where protocols operate through multiple smart contracts.

Token Airdrops and Business Incentives

An unsolicited airdrop may differ from tokens awarded in return for marketing, development or community-management services. If a UK company receives tokens as consideration for identifiable services, it needs to assess VAT on those services. Payment in tokens does not remove the obligation.

Assessing DeFi Rewards and Token Incentives

The VAT treatment of staking rewards, liquidity incentives and other token distributions depends on the underlying activity, including whether an identifiable service is being provided in return for payment

It is also important to establish who is entitled to the rewards. Tokens received into a director's personal wallet may still represent income arising from services provided by their limited company. The wallet receiving the tokens does not, by itself, determine the VAT position

Where the treatment is uncertain, the commercial arrangements and supporting evidence should be documented. For significant or particularly complex transactions, clarification from HMRC may be appropriate.

Correcting Historic VAT Errors in Crypto Transactions

A business discovering historic errors should consider the procedures in VAT Notice 700/45. Depending on the size and circumstances, corrections may be made on a subsequent return or require separate notification. HMRC asks businesses correcting returns because of GfC21 to include 'GfC21' in the reason for error.

Interest and penalties may arise. Before calculating adjustments, a marketplace should review its terms, customer records, smart contracts and transaction values to establish the correct liability.

Before correcting historic returns, the business should identify the relevant periods, determine whether the error was an underdeclaration or overdeclaration, quantify it in sterling and assess the notification thresholds under VAT Notice 700/45. Interest, potential penalties and the quality of the contemporaneous records should be considered as part of the disclosure strategy

Correcting Historic VAT Returns

Correcting historic VAT errors involving cryptoassets can be particularly challenging where customer-location information is incomplete, transaction records are fragmented or cryptocurrency values have fluctuated significantly

The starting point is to establish which transactions were affected, determine the correct VAT treatment and calculate any underpaid or overclaimed VAT using appropriate sterling valuations. Any necessary corrections must then be reported to HMRC in accordance with the applicable VAT error correction rules.

Maintaining a clear record of the calculations, supporting evidence and reasons for the VAT treatment adopted is particularly important where historic transactions involve uncertainty or incomplete information.

Five Key VAT Considerations for Crypto Businesses Following GfC21

HMRC's updated guidance highlights several areas where crypto businesses may need to reconsider their existing VAT treatment, particularly where transactions involve NFTs, digital platforms or decentralised services.

Identifying taxable and exempt activities

Not all crypto transactions receive the same VAT treatment. Revenue from NFT sales, digital services and token launches needs to be distinguished from exempt financial transactions and activities outside the scope of VAT. The treatment depends on what is actually being supplied, rather than the type of cryptocurrency involved.

Establishing customer location and status

Businesses selling digital products internationally need sufficient evidence to establish where their customers belong and whether they are businesses or consumers. This can be particularly difficult where purchases are completed anonymously through wallet connections, without conventional checkout or registration processes.

Understanding marketplace VAT responsibilities

NFT marketplaces and other digital platforms may be treated as suppliers for VAT purposes, depending on their involvement in the transaction. Contractual terms, payment authorisation and delivery arrangements can determine whether VAT applies to the full value of customer sales rather than just the platform's commission.

Calculating VAT registration turnover and input VAT recovery

Crypto receipts do not automatically count towards the £90,000 VAT registration threshold. Equally, businesses carrying out exempt activities may face restrictions on recovering VAT incurred on their costs. Both issues require consideration of the underlying transactions rather than simply the amounts received into wallets or bank accounts

Maintaining reliable transaction and accounting records

Blockchain records provide useful evidence of transfers and payments but may not contain everything required for VAT purposes. Customer-location information, sterling valuations, transaction fees, refunds and the VAT treatment applied must also be supported by appropriate records

For businesses developing new NFT collections, marketplaces or token-based services, these issues can influence pricing, platform functionality and the customer checkout experience. Established businesses may also find that arrangements designed before HMRC's updated guidance do not provide sufficient information to support their existing VAT treatment.

The Wider Implications of HMRC’s Crypto VAT Guidance

HMRC's guidance gives crypto businesses a clearer framework for digital assets, overseas customers and marketplaces. However, applying the rules requires a detailed understanding of the actual business model.

A token can provide software access, artwork, financial rights or an interest in physical assets. A marketplace can become liable for VAT on sales where it receives only a commission. A wallet address may document a transfer without providing the customer information needed for VAT.

These issues affect pricing, cash flow, platform profitability, input VAT recovery and investment forecasts. Further guidance would be welcome for more complex DeFi structures, including certain staking, liquidity and token-incentive arrangements.

Our recommendation is to assess VAT when designing the business model, rather than leaving it until the first return is due. That gives founders greater control over compliance costs and unexpected liabilities.

Specialist VAT Advice for Crypto and Web3 Businesses

VAT on cryptoassets can be particularly challenging for businesses operating NFT projects, exchanges, DeFi platforms and other blockchain-based services. International sales, anonymous wallet transactions and marketplace arrangements can create VAT obligations that are not immediately apparent from the blockchain records.

At The Friendly Accountants, we have specialised in UK crypto taxation since 2016. Our experience combines Chartered Accountancy and Chartered Tax expertise with a practical understanding of crypto transactions, digital platforms and the accounting challenges faced by Web3 businesses.

We advise on VAT registration, NFT and token sales, international transactions, marketplace liability and historic VAT issues, alongside the wider Corporation Tax and accounting implications of operating a crypto business

For more information about the tax and accounting challenges facing businesses in this sector, read our Crypto Taxes for UK Companies: A Guide for Business Owners. The guide covers company-held cryptoassets, token issuance, founder remuneration, DeFi and the records businesses need to maintain

Talk to Us About Your Crypto Business

You can explore our other Crypto tax guides or, if you would like to discuss how we could help your business, please complete our Business Questionnaire and a member of our team will be in touch.