UK and International Tax news
HMRC Publishes Manual On Cryptoassets
Tuesday 27th April 2021
HMRC has recently consolidated its guidance on the tax treatment of cryptoassets in a new manual.
HMRC issued updated guidance in December 2018 on how individuals who have cryptoassets are taxed. This was followed in November 2019 with guidance on how transactions involving exchange tokens such as bitcoin undertaken by companies and other businesses would be taxed.
HMRC’s new manual includes an introduction to cryptoassets and describes exchange, utility and security tokens, and stablecoins. It also covers derivatives over cryptoassets, distributed ledger technology, exchanges, proof of work and stake, public and private keys, wallets and record keeping.
The manual includes further sections on the tax treatment of transactions involving cryptoassets undertaken by individuals and businesses which mainly reflect existing guidance, clarifications but no new rules.
HMRC reconfirms that only in exceptional circumstances would it treat individuals who buy and sell exchange tokens with high frequency, level of organisation and sophistication for the activity to amount to a financial trade in itself. If the taxpayer’s activity is considered to be trading then income tax treatment will take priority over capital gains tax treatment to profits or losses.
The manual restates HMRC’s position in that it does not consider the buying and selling of cryptoassets to be the same as gambling, which would otherwise be exempt from tax. Whether a transaction can be characterised as betting or gambling will be a question of fact and HMRC will consider the particular facts of any transaction involving cryptoassets before concluding whether that transaction had the character of betting or gambling.
Where a company or business carries out activities involving exchange tokens, including buying and selling exchange tokens, exchanging tokens for other assets including other types of cryptoassets, ‘mining’ and providing goods or services in return for exchange tokens, the type of tax will depend on who is involved in the business and the activities it carries out including whether these activities count as a trade). Liability to CGT, CT, CT on chargeable gains, income tax, NIC, stamp taxes and VAT may arise.
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 exchange tokens.
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