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The UK’s Tax Authority is Targeting the Confiscation of Cryptocurrency Assets

UK banks are resisting the government’s crypto push
UK banks are resisting the government’s crypto push

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The UK government is taking steps to crack down on tax evasion through cryptocurrencies. The government is reviewing proposals to provide HM Revenue & Customs (HMRC) with the power to confiscate crypto-assets from businesses that have not met their tax obligations. This is part of a broader plan to modernize tax collection for delinquent businesses, which was first reported by The Telegraph.

A consultation document dated April 27 discussed the potential impact of added regulations on digital currencies. The document highlighted the possibility of the increased popularity of crypto wallets as a preferred means of payment for goods and services.

The paper noted that if the HMRC has the power to recover debts from bank accounts directly, it should also be able to do the same with digital wallets. This means that if someone owes taxes and has funds in their digital wallet, the agency should also be able to recover the owed amount from there.

The current Direct Recovery of Debts (DRD) legislation does not cover digital wallets. As a result, HMRC currently has no enforcement powers to recover tax debts if a business has substantial funds in a digital wallet but refuses to pay. The paper also noted that it is unclear how easy it would be to consider crypto wallets due to the fluctuating value of crypto- assets.

The proposed legislation is expected to come into effect later this year and will apply to all cryptocurrencies, including Bitcoin and Ethereum. The UK government believes this new legislation will help address the problem of tax evasion in the cryptocurrency sector. Tax experts have welcomed the move, saying that it will help to level the playing field between taxpayers who pay their fair share and those who seek to evade their tax obligations.

However, some cryptocurrency advocates have expressed concerns about the potential impact on privacy and decentralization, which are fundamental principles of cryptocurrencies. It is also part of a broader trend of governments worldwide grappling with regulating the rapidly evolving cryptocurrency sector while balancing the need to protect investors and prevent criminal activity with the desire to encourage innovation and maintain the decentralized nature of cryptocurrencies.

One comment from the paper said,

“Given HMRC has had the power to recover established debts directly from debtors’ bank and building society accounts for 7 years, as a matter of principle, equity, and fairness, it makes absolute sense that HMRC should modernize their approach so that the same power exists in relation to digital wallets.”

It remains uncertain whether the proposed authority to confiscate crypto-assets from businesses that have not met their tax obligations would only apply to centralized entities where the individual does not control their own private key. Non-custodial wallets are generally protected from government seizure without the owner’s consent. HM Revenue & Customs (HMRC) stated that it would consider the issues raised in relation to the practical implementation of this proposal and take safeguards into account in any policy development going forward.

The government emphasized the need to advance the proposal further. The next phase will involve engaging with external stakeholders, such as digital wallet operators, to identify potential obstacles during implementation. The government also plans to address concerns raised in a future consultation regarding the proposal’s implementation.

This development comes as UK crypto enthusiasts eagerly await industry-specific regulations. Andrew Griffith, financial secretary to the UK Treasury, stated in a recent interview that regulations in the country are expected to solidify within the next 12 months.

The Financial Services and Markets Bill (FSMB) is a crucial legislation shaping forthcoming stablecoins and crypto-assets regulations. It is anticipated that amendments will be made to the bill, leading to increased compliance obligations for businesses operating in the crypto space.

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