British Tax Authority Removes Crypto Assets as a Currency

The British tax authority, Her Majesty’s Revenue and Customs (HMRC), is currently combing through its tax guidance for individuals and businesses, and according to a new draft, it would seem that its stance on crypto assets is becoming much clearer. 

Following in the footsteps of the United States Internal Revenue Service, HMRC has published tax guidelines for individuals and businesses. Amongst other things, the tax guidelines show clearly that crypto assets are not to be treated as currency, while also defining how people and companies which deal in the assets would be taxed going forward. 

Given the country’s conservative nature, it comes as no surprise that the tax guidelines themselves are traditional. However, in more ways than one, it rings similar to those adopted by several countries. 

Digital Assets are not Currencies

According to the guidelines, for individuals involved in cryptocurrencies, these assets are to be considered as a personal investment that attracts capital gains tax. Once a crypto exchange occurs, tax remittance follows. Investors would also pay capital gains taxes when cryptocurrencies are gifted between people.  

Several companies have been known to put cryptocurrency transactions and other related activities under capital gains tax, including Israel and the United States. However, unlike other countries that don’t yet have a policy that supports individual and professional exchanges, the HMRC would classify crypto as a business activity “in exceptional circumstances.” 

The policy adds, “HMRC expects individuals to buy and sell crypto assets with such frequency, level of organization and sophistication that the activity amounts to a financial trade in itself.”

All crypto mining is also to be treated as a business activity, although the agency will review several factors (such as the organization, the activity degree, and risk) that will determine the classification of such activity. If the mining doesn’t result in trade, then any cryptocurrency given as mining rewards will be taxable as income as well.

Airdrops, which the IRS notoriously fumbled with its tax guidance, will be treated in the UK as either income or capital gains tax, depending on the circumstances. Airdrops that are given due to a chain split or any other activity, but doesn’t denote payment for a service rendered qualifies as capital gains tax. For business-related airdrops, income tax is applicable. 

Prior UK Regulations on Crypto

Before now, the United Kingdom had no specific crypto-related tax laws. However, financial regulations in the kingdom have done their best to provide a favorable environment for crypto businesses.  

Initially, HMRC considered the exchange of crypto assets as gambling. However, the new update on tax policy reflects changes from the status quo. The HMRC also did request digital asset exchanges to submit the names of their customers, as well as records of their transactions. With this, the policy notes, the tax regulator will be able to curb the use of cryptocurrencies to evade taxes, while also staying in compliance with the kingdom’s Anti-Money Laundering (AML) requirements. 

Although the tax policies were not quite as thorough and encompassing as those outlined by the IRS when it released its tax guidelines last month, this is a great start.