UK and International Tax news
HMRC Publishes Update On Tax Treatment Of Cryptoassets For Companies
Wednesday 20th November 2019
HMRC has recently published guidance on how transactions involving cryptoasset exchange tokens undertaken by companies and other businesses will be taxed.
The latest guidance deals specifically with the tax treatment of exchange tokens, for example, bitcoin. The tax treatment of security tokens and utility tokens will be addressed in future guidance.
Where a company or business is carrying out activities which involve exchange tokens, they are liable to pay tax on them. Such activities include 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
Depending on who is involved in the business, the activities it carries out and whether these count as a trade, it is likely it to be subject to one or more of the following – CGT, CT, IT, NICs, Stamp Taxes and/or VAT.
HMRC will consider each case on the basis of its own facts and circumstances. In particular, whether the buying and selling of exchange tokens amounts to a trade will depend on a range of factors including the degree and frequency of activity, the level of organisation and intention (including risk and commerciality).
Cryptoassets can be awarded to ‘miners’ in return for verifying additions to the distributed ledger. Whether such activity amounts to a taxable trade, with the cryptoassets as trade receipts, will depend on the particular facts including those factors referred above.
For corporation tax purposes, companies must take into account all of the exchange token transactions they have carried out. However, HMRC does not consider any of the current types of cryptoassets to be money or currency and therefore corporation tax legislation which relates solely to money or currency will not apply to exchange tokens or other types of cryptoasset. These include the foreign currency rules (s.328 CTA09), the Disregard Regulations relating to exchange gains/ losses (SI2004/3256) and designated currency elections (s.9A CTA10). In addition, the loan relationship rules will not generally apply to exchange tokens as no money debt will typically exist and it is HMRC’s view that exchange tokens do not constitute currency.
If the activity concerning the exchange token is not a trading activity, and is not charged to corporation tax in another way (such as the non-trading loan relationship or intangible fixed asset rules, then the activity will be treated as the disposal of a capital asset. Any gain that arises from the disposal would be charged to corporation tax as a chargeable gain.
HMRC’s guidance includes further detail on investment transactions involving exchange tokens, blockchain forks, airdrops, paying employees in cryptoassets, relevant PAYE/NIC and VAT considerations as well as SD, SDRT and SDLT implications.
If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.Contact Us