Cryptocurrency isn't a new concept. Yes, Bitcoin, the best known cryptocurrency, celebrated its tenth anniversary last year.
However, it was only in December 2019 that HMRC published an updated version of its Crypto Assets Guidance to include a section on the situs (the place to which an asset belongs for legal purposes) of Cryptocurrency exchange tokens for tax purposes in the UK.
As with anything new, it may take the authorities some time to get up to speed; it may be complex to cryptocurrency for the uninitiated, and it may be complex to the initiated. So it is not shocking that the authorities are keen to understand how it is regulated, given the relative popularity of cryptocurrency and its widespread use. Although HMRC acknowledges that assets such as bitcoin (among others) are also commonly referred to as' cryptocurrencies,' it reaffirms its view that contrary to the term ' currency' which traditionally denotes money in the form of paper or coins; cryptocurrencies are neither currency nor money.
HMRC has now established what it considers to be a' simple, rational, straightforward and impartial rule that can be implemented easily' when deciding the cryptocurrency exchange tokens role. The guidance notes that the crypto-currency situs is contingent on the beneficial owner's tax residence. If the owner is resident for tax purposes in the United Kingdom, the swap tokens will be subject to UK inheritance tax and any disposals will be subject to capital gains tax.
A contrary view is that instead cryptocurrencies should be stored where they could be retrieved. Of example, if they are stored on a hard drive kept outside the UK, such assets would be assets situated outside the UK. Being able to place cryptocurrencies in a different jurisdiction will, in principle, enable taxpayers to conduct tax planning on any income from the crypto assets with respect to their UK tax status and shield the value of the crypto assets from UK inheritance tax. However, this is not envisaged by HMRC whose guidance indicates that those residing in the United Kingdom will de facto make their assets located in the UK by reference to their own position of residence.
Those who use cryptocurrency as an investment type then need to keep a record. HMRC has indicated that it is the taxpayer's responsibility to keep separate records of each crypto-asset transaction and this should include: The type of crypto-asset, the date of the transaction when it was acquired or sold, the number of units, the value of the transaction in pound sterling, the cumulative sum of the investment units kept and the bank statements and wallet addresses, if required for HMRC investigation or examination. Needless to say, your accountant would be grateful for accurate record keeping as they struggle to survive the inevitable January rush to submit returns on self-assessment.
Eventually, crypto assets earned as income from jobs are regarded as' value of money' and are subject to deductions from income tax and national insurance on the value of the asset. I'm sure there are many who would appreciate the opportunity to be paid in the cryptocurrency form and those who do should remember that if that cryptocurrency received as income increases in value and sells it for cash, then they'll have to let the Exchequer know and wire them some boring old sterling to settle their tax obligations. Luddites, that is.
Shadrach is a Trending Journalist. His first job was as a newsreader and journalist at an award winning magazine. He spends most of his time scouring the internet for the hottest topics to share with his readers.