HMRC, which creates tax guidelines and various other financial policies, published tax guidance updates that aim to clarify the agency’s stance regarding how companies and individuals conducting cryptocurrency transactions will be taxed.
The guidelines outlined by the HMRC reveal the agency’s view regarding transactions involving digital assets. The UK tax authority explains which taxes may apply to crypto-related businesses and how to properly file tax returns and perform accounting procedures when conducting digital currency transactions.
HMRC also discusses the taxation of exchange tokens. The agency said that guidelines for security and utility tokens will be released in the foreseeable future.
UK-based firms that purchase, sell, trade or mine crypto tokens for any other assets or offer goods and services in exchange for tokens are required to pay taxes, HMRC said. These taxes might include capital gains tax, corporation tax, income tax, stamp taxes and National Insurance contributions.
HMRC also noted that it does not treat cryptocurrencies as money or a currency.
HMRC acknowledged that the digital assets industry has a rapidly evolving ecosystem and that the agency will examine the relevant facts of each case in order to apply the appropriate tax provisions, instead of adhering strictly to theory.
Previously, HMRC had classified digital currency trading to be the same as gambling. The recent tax guidance now says that the tax authority does not consider the buying and selling of crypto tokens to be in the same category as gambling.
In August 2019, HMRC reportedly asked digital asset exchanges to provide records of users’ identities and a history of the transactions they’ve conducted. HMRC had been trying to resolve the problem of potential tax evasion on crypto trading platforms. According to sources familiar with the matter, HMRC only asked exchanges to provide transaction histories from the past three years, which suggests that early adopters of digital currencies might not have to pay taxes on older transactions.
In July 2019, the Financial Conduct Authority provided final guidance on cryptoassets, in concert with HM Treasury and the Bank of England, stating “any token that is not a security token, or an e-money token is an unregulated token.”