The UK’s tax authority has provided updated guidance on tax calculations. Her Majesty’s Revenue and Customs (HMRC) has confirmed what they think about cryptocurrency tax issues.
This is an update to previous guidelines on the subject. The last version was released at the end of 2018. The 1st of November saw this latest update add some extra details to the older document. In the US, the IRS issued its own cryptocurrency guidelines earlier this year too.
The Background
The Cryptoassets: tax for businesses policy paper covers how HMRC will tax transactions involving cryptoasset exchange tokens. It relates to companies and other businesses, which includes sole traders and partnerships.
It now explains exactly how HRMC deal with the different types of tax related to cryptocurrencies. You can also see here whether certain activities incur a cryptocurrency tax or not.
In general, HMRC doesn’t class cryptocurrencies as currencies. Neither does it think of them as being stock, or even marketable securities. This applies to Bitcoin (BTC), Ethereum, (ETH), Ripple (XRP), and all other types of cryptoasset.
What Are the Main Points?
This means that they are virtually free from stamp taxes. Yet, companies still need to pay taxes that are used in debt transactions. They also need to keep good records of their cryptocurrency transactions. This includes a note of the amount spent in Pounds on tokens.
It is also pointed out that they can be classed as stock or marketable securities in certain situations. For example, when they “fall within the scope of Stamp Duty or Stamp Duty Reserve Tax”. This will be assessed on a case-by-case basis, depending upon the cryptoasset in question.
In addition, some cryptocurrency tax may be due when buying or selling tokens. Mining and providing goods or services in exchange for tokens may also incur tax. Therefore, businesses have to provide this information on their tax returns.
With mining, it depends upon the scale of the operation. The guidelines state that cryptocurrency tax wouldn’t normally be a taxable trade if the spare capacity of a home computer is used. However, buying a bank of PCs exclusively to do this could make it a taxable trade.
Other sections of the document cover areas such as hard forks, airdrops and Bitcoin exchanges.
Cryptocurrency Tax Summary
UK businesses can now see exactly how their crypto activities are viewed by tax authorities. It shouldn’t make any major difference to them, but this is still important information to be aware of.