UK Tax Office Releases Policy For Bitcoin Holdings

Her Majesty's Revenue & Customs (HMRC) is the branch of UK Government which are responsible for all things related to tax and revenue, be that on a personal level or indeed on an institutional level. The UK have very strict tax laws and therefore, uncertainty that surrounds the use of cryptocurrencies within these laws has been rife.

This week, HMRC released a policy paper which aims to provide clarity to some of these uncertainties to ensure that everyone dealing in cryptocurrency in the UK is aware of what policies they need to follow.

You can see the full policy paper for yourself here

Cryptoassets for individuals discusses cryptocurrency as a new asset and acts as a surface level discussion on how crypto relates to the law. HMRC have stated that this is not a finished document and therefore a more official policy is set to be established, as it stands, this seems to just focus on cryptocurrency holdings by individuals and not by companies or businesses. According to the paper:

“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). Our views may evolve further as the sector develops.”

HMRC define cryptocurrencies as ‘cryptoassets’ which are cryptographically secured digital representations of value or contractual rights, HMRC, like many regulators do not define cryptocurrency as money, but rather a digital confirmation of value.

“The tax treatment of all types of tokens is dependent on the nature and use of the token and not the definition of the token. This paper considers the taxation of exchange tokens (like bitcoins) and does not specifically consider utility or security tokens. For utility and security tokens this guidance provides our starting principles but a different tax treatment may need to be adopted.”

Should I be paying tax?

If you’ve made it this far, you’ll probably have one big question - should you be paying tax? The answer is not yet that transparent, however:

“In the vast majority of cases, individuals hold cryptoassets as a personal investment, usually for capital appreciation in its value or to make particular purchases. They will be liable to pay Capital Gains Tax when they dispose of their cryptoassets. Individuals will be liable to pay Income Tax and National Insurance contributions on cryptoassets which they receive from: their employer as a form of non-cash payment or, mining, transaction confirmation or airdrops.”

In essence, if you are an investor in the UK you are required to pay tax on your cryptocurrency investments, for further clarity I would suggest that you read the full policy paper written by HMRC, it’s important that you do so.

It’s good to see that HMRC are now starting to act seriously with regards to cryptocurrency. By recognising this as something they can tax, in turn they are suggesting that they do believe this is a form of legitimate money, even if they won’t admit it.

For now, we’ll have to wait and see what happens whilst HMRC develop more specific legislation in this area.