Recent years have seen Bitcoin and other cryptocurrencies becoming a vehicle for investment as big gains have drawn a large audience. Some businesses, stores, and restaurants have also started accepting Bitcoin as customer payments.
But just how can a small business accept Bitcoin, and what are the tax and VAT implications of doing so?
In this guide we explain how your small business can start to accept Bitcoin or other forms of cryptocurrency, how it should be recorded, and how HMRC treat it.
Can a small business accept Biitcoin? A small business can accept Bitcoin and crypto by using an app in-store or a payment processor for e-commerce. The GBP amount owed is converted to Bitcoin, then your customer has to scan a QR code to make the BCH payment.
HMRC says it is important to distinguish between trading and non-trading activity. This distinction will affect the treatment of cryptocurrency in UK tax law and how your small business accounts for it when customers pay in Bitcoin.
As with anything related to finance and tax, it’s not as simple as just letting your small business accept cryptocurrency without knowing the facts, particularly with regards HMRC.
In our guide to small businesses and Bitcoin we explain the basics questions around cryptocurrency from a small business perspective. Please note that we offer no opinion on whether it is right or wrong for your small business to get involved in cryptocurrency.
How to accept Bitcoin for your business
There are two different ways in which a small UK business can accept Bitcoin; in-store and online, both of which have similar payment method.
Please note: We assume you already have a Bitcoin wallet. If you don’t, you will need to set one up – you can use this guide on Coinbase.com to do so.
Here’s how you start to allow customers to pay with Bitcoin.
1. How to accept Bitcoin payments as a business in-store
Small businesses can accept cryptocurrency and Bitcoin cash in-store and on their physical premises by using an app loaded onto a smartphone or tablet.
It works in a very similar way to how you can accept credit card payments using a POS machine – but instead the app is designed to take Bitcoin Cash (BCH).
When your customers come to pay, you open the app, enter in what they owe you in GBP, and the app will convert that pound amount to a Bitcoin Cash amount.
The app will generate a QR code for the customer to scan using their smartphone’s Bitcoin wallet app… and that’s it. You should receive the payment into your own Bitcoin wallet within seconds.
Your small business has just allowed customers to pay with Bitcoin.
You will need to choose the right app for you so you can accept Bitcoin in your shop or small business. There’s a great list of apps on Bitcoin.com.
2. How to accept Bitcoin payments as a business online
If your small business wishes to accept cryptocurrencies through your website e-commerce you will need to have the option at the checkout.
It’s relatively simple to setup with the common e-commerce providers and involves using a Bitcoin Cash payment gateway so you can accept BCH online as well as the usual credit and debit cards.
Just like the in-store app for accepting customer Bitcoin payments, the checkout system will convert the GBP amount into BCH, then bill the customer that amount instead.
Again, a QR code will be generated, the customer will scan it with their crypto digital wallet app, and the payment will be taken in seconds.
How can my small business accept cryptocurrency?
Now you know how your small business can accept cryptocurrency either online or in-store, here’s a little more about how the system of Bitcoin payments will work.
Bitcoin payments function the same way as many other types of cryptocurrencies. They use a technology called the blockchain to keep transactions secure.
Customers can purchase bitcoins (or other cryptocurrencies) using the currency of their choice, keeping the coins in a designated wallet.
As you’ve now seen, when the customer checks out, they can use what’s in the digital wallet to pay for their products.
As the seller, you can use a Bitcoin payments service to convert these into the currency of your choice. The money is then transferred to your usual business bank account.
How to accept Bitcoin with PayPal
On the 7th of June 2022, PayPal announced that PayPal users can now Transfer, Send, and Receive Bitcoin, Ethereum, Bitcoin Cash, and Litecoin.
We are thrilled to announce that starting today, PayPal supports the native transfer of cryptocurrencies between PayPal and other wallets and exchanges. This feature has been consistently ranked by users as one of the most requested enhancements since we began offering the purchase of crypto on our platform.
But what does that mean to you in terms of accepting Bitcoin with PayPal as a business? PayPal have this to say:
At this time, buying, selling and holding Crypto on PayPal is available for Personal PayPal accounts. Please visit our Cryptocurrency page for the latest updates on this service.
You only need to look at the number of disclaimers on this page to see how big businesses are approaching this matter.
How many businesses accept cryptocurrency?
Whilst it is difficult to know with certainty how many businesses accept cryptocurrency it is safe to say that the number is growing.
In a VISA survey from early 2022 around 25% of small businesses they canvassed were planning to accept crypto payments from customers.
Almost a quarter of small businesses in nine countries around the world plan to accept digital currencies as a form of payment in 2022, while 13% of consumers in those countries expect retail stores to begin offering crypto payments this year and beyond. The survey of 2,250 small business owners across nine countries including the United States, Brazil, Singapore, and Canada suggests cryptocurrencies may be starting to go mainstream as a means of payment.
When you compare that to the number of global businesses accepting cryptocurrency in 2021 from fundera at 15,174 and in the US alone just 2,300 that represents a big shift in the potential of how many businesses accept cryptocurrency.
That increase could represent a change in the levels of trust or just businesses seeing an opportunity in accepting cryptocurrency.
More and more businesses are using cryptocurrency, including big names like Microsoft and Expedia. PayPal has even added Bitcoin to its usual payment options.
More on how to accept crypto payments on a website
As cryptocurrencies become more mainstream, you may start worrying about losing potential business if you do not offer this option. Whether this is right for your small business or not is only a decision you can make.
So, how do you accept crypto payments on your website?
To hold crypto, you need a “wallet.” This is very similar to the “wallet” app you probably have on your iPhone, but it’s specific to crypto.
Your crypto wallet allows you to buy, sell, and hold many different types of cryptocurrency, for instance, Bitcoin, Ethereum, and Tether.
You get a unique private key that helps to keep your currency safe and accessible, and it links with other apps to help make transactions seamless.
When a customer buys something in crypto on your small business website, the money will eventually filter into your wallet and from there, you’re free to exchange it into the currency of your choice.
How you accept crypto payments on your website will largely depend on how your site is hosted and which platform you use. For the major platforms like Shopify, WooCommerce (WordPress), and Magenta, there will be different plugins you can use for a quick setup.
If your platform does not have a native integration then there will be a payment button option, invoice, or custom integration option.
Review the process before settling on which company to use. You don’t want to find out after that it is a nightmare for customers to pay and for the business to get access to the funds.
Are there any cryptocurrency business opportunities?
Ultimately, the future of cryptocurrency looks promising both for small businesses and consumers alike. Adoption is rapidly increasing, and as more big companies like Microsoft start to accept crypto as payment it’s likely that smaller businesses will follow suit.
The team over at GoCardless provided this list of the cryptocurrency business opportunities:
- Lower transaction fees: the fees associated with cryptocurrency in comparison to credit cards are lower. That saving could be put to good use in your small business.
- Increased security: because of its decentralised nature, cryptocurrency protects merchants against fraud. There aren’t any third parties that can cancel your online payments. The blockchain stops customers without appropriate funds to make a payment, reducing the likelihood of time-wasting chargebacks. If you suffer from lost revenues due to chargebacks not to mention the staff resource wasted this could represent a decent saving for your business.
- Nearly instant processing: there’s no need to wait for funds to clear with Bitcoin payments or other types of cryptocurrencies. While bank transfers can take several working days, a crypto payment is received and processed in real-time. If you operate in an overdraft this will save you interest payments.
- International marketplace: one of the biggest benefits to using cryptocurrency is that it throws open the doors to new markets. Your small business can easily take Bitcoin payments from buyers living in any country, with a universal currency that can be converted into GBP at your end. This can boost business revenue and encourage growth.
FAQs on small businesses can accepting Bitcoin
Can I use Bitcoin in business?
Yes, you can use Bitcoin in business in the UK. HMRC says it is important to distinguish between trading and non-trading activity. This distinction will affect the treatment of cryptocurrency in UK tax law.
If your small business is buying the Bitcoin as an investment, it will be recorded in the balance sheet of your limited company as an intangible asset.
If transactions in cryptocurrencies are non-trading, they are subject to capital gains tax at disposal. This is true for both individuals and businesses.
For individuals, this will also need to be reported in their self-assessment tax return.
No tax will be due for holding cryptocurrencies without disposal in your small business. However, the exchange of one cryptocurrency for another will also be considered disposal.
Tax on this cryptocurrency exchange in the UK will include capital gains tax.
If you are buying Bitcoin as you are trading Bitcoin through a limited company, then it will be treated as a profit and loss transaction. Any profit made during your financial trading period will be subject to corporation tax at 19% (2022).
If activities are considered trading, they will face different cryptocurrency tax in the UK. For individuals, income tax supersedes capital gains tax and applies to profits.
For companies, profits (or losses) from cryptocurrency trading are part of the trading profit rather than a chargeable gain.
HMRC also suggests what cost you can deduct from disposal proceeds to calculate capital gain. See the full HMRC guidance here.
Should small businesses accept cryptocurrency?
Bitcoin or any other type of cryptocurrency is extremely volatile as a currency. We would only recommend using or accepting Bitcoin in your small business if you have done thorough research.
Here are a few suggestions of how small businesses can use Bitcoin or other cryptocurrencies. This is not an endorsement that you should be doing this.
- Lower transaction fees: low or no transaction processing fees compared to traditional money
- Attraction of new customers: give your business an innovative image
- Acceptance of payments from anyone – online stores for example can accept payment from anyone in the world
- Potentially lower fraud risk and risk of chargebacks: transactions are irreversible, you don’t have the same worry as credit cards
Conclusion
Crypto is elevated risk, make sure you know what you are getting into before getting involved. We can offer no advice when it comes to what to buy and when to sell or offer an opinion on whether you should get involved at all.
Bitcoin is a virtual currency. Bitcoin is not run by a central bank nor an administrator. Transactions in Bitcoins are recorded on a ledger using cryptography with no intermediary.
Bitcoin was created as a way for people to send money over the internet. The digital currency was intended to supply an alternative payment system that would run free of central control but otherwise be used just like traditional currencies.
Trading in bitcoin or any cryptocurrency is highly volatile. There are large gains to be had but as we have also seen recently in the press there are large losses to be suffered.
This is fine if you are sitting on crypto as an investment with no need to sell in a hurry but if you are using it as a liquid asset any day of the week could be boom or bust.
Would you invest in foreign exchange to make money? Dabbling with cryptocurrency is the same. For every winner there are losers. I cannot see past trading in cryptocurrency as anything other than a form of gambling.
Running a small business is a gamble. Do you wish to put that at heightened risk?
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Image in header via https://pixabay.com/photos/bakery-breads-assorted-assortment-1868925/
Jon has been in business since 1999, and in that time worked with more than 300 small business clients. As well as being an accountant, he is also an early adopter of tech, and has helped small businesses to leverage the power of their computer systems by creating software to automate and simplify accounting tasks.
