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28 May 2020

Crypto Tax Guidelines Leave More Questions Than Answers - Bitcoin News

Crypto Tax Guidelines Leave More Questions Than Answers - Bitcoin News

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HMRC’s recentupdateto its guidance oncrypto taxes, published on November 1, dealt with crypto transactions carried out by companies, businesses such as partnerships and sole traders, and individuals.

Bitcoin is explicitly mentioned in the policy paper as an example of an exchange token, with security and utility tokens to be dealt with in a future update.

If you sell exchange tokens that have appreciated in value, they will – as investments – be liable to capital gains tax; income tax and national insurance contributions are also due on crypto assets received from employers as a form of non-cash payment and from mining operations or airdrops.

Because assets such as bitcoin are traded on exchanges which do not use pounds sterling, HMRC’s guidance notes that the value of any gain or loss must be converted to sterling on an individual’s self assessment tax return.

The guidance points out that individuals must keep separate records of each crypto asset transaction including type of asset; date of transaction; if they were bought or sold; number of units and value of transaction in sterling; cumulative total of the investment units held; and bank statements and wallet addresses.

The HMRC also betrays its own ignorance when discussing matters of fraud in the cryptosphere, noting that theft is not considered disposal “as the individual still owns the assets and has a right to recover them.” They may have a right to recover them, but they probably have no prospect of doing so.

But most business activities in the cryptosphere are subject to some form of tax, whether the activity is buying and selling tokens, exchanging tokens for other assets (including other forms of cryptocurrency) and supplying goods and services in return for tokens, the latter of which entails VAT on the “pound sterling value of the exchange tokens at the point the transaction takes place.”.

And if the activity concerning the exchange token is not deemed “trading activity,” the gain obtained from eventually disposing of a crypto asset will be charged to corporation tax.

The fact that the status of security and utility tokens remains unaddressed indicates that HMRC is continuing to wrestle with fundamental questions about tax on crypto.

Do you think tax agencies are at fault for complicating crypto tax guidance, or are they just struggling to keep pace with a rapidly evolving industry

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