UK’s Tax Policy Finally Updated

After a long year, Her Majesty’s Revenue & Customs (HMRC) have finally updated the cryptocurrency tax guidance for businesses. The document states that bitcoin will be separate from utility and security tokens, and guidance for differentiating them will come in due time. Currently, crypto assets are still defined as commodities, not money or currency.

Businesses that engage in trading exchange tokens are liable for tax payment. These tax payments include capital gains tax, corporation tax, income tax, national insurance contributions, stamp taxes or VAT.

Mining is also taxable as it can constitute a trade, however the HMRC say mining at home is not normally a taxable event:

“Using a home computer while it has spare capacity to mine tokens would not normally amount to a trade … to mine tokens for an expected net profit would probably constitute trading activity.”

Both capital gains tax and corporation tax can be considered taxable events if the company have token holdings, and tokens can be pooled together for easier calculation.

“If a person owns bitcoin, ether and litecoin, they would have three pools and each one would have its own ‘pooled allowable cost’ associated with it. This pooled allowable cost changes as more tokens of that particular type are acquired and disposed of.”

Although the document includes guidance for airdrops and hardforks, it looks to be the same rules that were issued from the individual guidance in 2018. The new tax laws also state that employees can now be paid in cryptocurrencies, however employers cannot use crypto assets for pension funds as they are not seen as money.

This could all change in the future as the guidance says:

“HMRC’s views may evolve further as the sector develops.”

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