On Friday, November 1, Her Majesty’s Revenue and Customs (HMRC) office, the UK’s tax authority, has updated its cryptocurrency taxation guidelines for both individuals and businesses.
Among other things, the new guidelines clarify that cryptocurrency is neither considered to be currency nor money and that it generally does not consider cryptocurrencies to be “stock or marketable securities.”
It is important to note that HMRC does not consider any of the current types of cryptoassets to be money or currency,” the guidance said, which means that “any Corporation Tax legislation which relates solely to money or currency does not apply to exchange tokens or other types of cryptoasset.”
Stamp tax generally does not apply to crypto but could apply in certain cases
The guidelines go on to explain that crypto’s designation as neither currency nor money means that cryptocurrencies are largely exempted from stamp taxes, though stamp taxes will still apply if the cryptocurrencies are used in debt transactions.
However, the guidance also says that exchange tokens can be considered to be ‘stock or marketable securities’ or ‘chargeable securities’ under circumstances in which case they would “fall within the scope of Stamp Duty or Stamp Duty Reserve Tax.”
“This will be considered on a case-by-case basis, dependent on the characteristics and nature of the cryptoasset, rather than any labels attached to them,” the guidance said.
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Clarification on which taxes apply when
The new guidance also provides information on how various types of taxes–capital gains tax, corporate tax, national insurance contributions, income tax, VAT, and others–apply to entities dealing with cryptocurrency.
Specifically, the guidelines said that if a company is “buying and selling exchange tokens, exchanging tokens for other assets (including other types of cryptoassets), ‘mining,’ [or] providing goods or services in return for exchange tokens,” they will most likely owe some form of tax.
“The amount of tax a business must pay will depend on its income, expenditure, profits and gains,” the guidelines said, adding that this information must be provided in the tax return submitted by the business.
The guidelines also said that each case would be assessed individually: “HMRC will consider each case on the basis of its own facts and circumstances. It will apply the relevant legislation and case law to determine the correct tax treatment (including where relevant, the contractual terms regulating the exchange tokens).”
However, in order to deal with each case appropriately, companies are required to keep records of each cryptocurrency transaction (including crypto-to-crypto) transactions in pound sterling, as well as records of the valuation methodology for determining their value in pound sterling.
HMRC previously published cryptocurrency taxation guidance in December of 2018. The 2018 guidance asked individuals to keep records for each crypto transaction in pound sterling, and clarified taxation issues regarding forks, mining, and airdrops.
Earlier this year, Finance Magnates reported that HMRC requires local cryptocurrency exchanges to report their operations in order to verify tax compliance.