U.K. releases extensive crypto tax guidelines; Rules subject to changes depending on market evolution
The British Tax Authority has released a comprehensive guide for crypto taxation covering a host of activities, adding that this rule will be subject to change depending on how the market evolves.
Tue, 05 Nov 2019, 04:00 am UTC
Last year, the United Kingdom’s tax agency promised it will provide extensive guidelines for the nascent crypto industry to offer clarity for businesses and corporations dealing with this particular market. Now, Her Majesty’s Revenue & Customs (HMRC) has released the said guidelines for cryptoasset exchange tokens.
The guideline – which can be found here – explains how crypto businesses should pay for corporate tax, capital gains tax, income tax, national insurance contributions, stamp taxes or VAT. Hard forks, trading in exchange tokens, mining activities, intangible fixed assets, and many others are also covered.
The guideline maintains that bitcoin and its kin will neither be considered as money or currency but will still be categorized as a commodity. However, the HMRC also recognizes the early stages of the crypto industry and its interpretation now may be subject to change later depending on specific evolution of the market.
HMRC guidelines will evolve along with the crypto market
“The cryptoassets sector is fast-moving and developing all the time. The terminology, types of coins, tokens and transactions can vary. The tax treatment of cryptoassets continues to develop due to the evolving nature of the underlying technology and the areas in which cryptoassets are used.
“As such, HMRC will look at the facts of each case and apply the relevant tax provisions according to what has actually taken place (rather than by reference to terminology),” the guideline read.
For crypto miners, there will be several factors that will be taken into consideration for taxable trade. Degree and frequency of activity, level of organization, risk, and commerciality are the four facets that will govern this front.
The HMRC cites that mining on a home computer will not be considered as a trade. But buying a mining rig to specifically acquire cryptocurrencies with an expected net profit will be labeled as a trading activity. This categorization will also consider the cost of the rig and the power consumed by the equipment.
If the mined cryptocurrency doesn’t get traded, its value at the time of acquisition will be considered as a miscellaneous income, “with any appropriate expenses reducing the amount chargeable,” the HRMC wrote. If the mining doesn’t end as a trade altogether, any profits gained will fall under specific rules outlined by the guideline.
Lastly, if the miner chooses to hold, they’ll have to pay Capital Gains Tax or Corporation Tax in the event that they finally trade them at a later date.
As said earlier, more are crypto-related activities covered by the guidelines and those dealing with this market are highly encouraged to be familiar with it.
Meanwhile, the Financial Conduct Authority (FCA) has issued key instructions for crypto-related firms ahead of the implementation of the European Union's Fifth Money Laundering Directive (5AMLD) in early 2020. The FCA will be the AML/CFT supervisor of UK cryptoasset businesses, effective 10 January 2020.
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