UK tax agency rolls out guidelines for crypto tax treatment

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The tax authority of the United Kingdom has published guidelines on the tax treatment of cryptocurrencies, in its most comprehensive advice to crypto investors to date.

Her Majesty’s Revenue and Customs (HMRC), the agency that collects tax on behalf of the government, published the guidance setting out its view of digital assets, and how cryptocurrency investors might be liable for tax.

The document stops short of tackling tokens held by businesses or used for business purposes, with additional guidance specifically addressing business cases expected to follow. It expands on the position previously adopted by the UK government and HMRC in viewing cryptocurrency as a property asset, as opposed to a type of currency.

According to the policy paper, “HMRC does not consider crypto assets to be currency or money. This reflects the position previously set out by the report from the Cryptoasset Taskforce (CATF).”

The document suggests that a token’s use case will determine how it is treated for tax purposes, rather than the way the token is defined.

“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,” it noted.

Those buying tokens speculatively will be subject to Capital Gains Tax, while those paid in cryptocurrency in exchange for providing a service will be subject to income tax and national insurance, as with other forms of earned income.

According to the agency, “There may be cases where the individual is running a business which is carrying on a financial trade in cryptoassets and will therefore have taxable trading profits. This is likely to be unusual, but in such cases Income Tax would take priority over the Capital Gains Tax rules. HMRC will publish separate information for businesses in due course.”

The guidance also deals with calculating liability in the case of hard forks resulting in new tokens.

“New cryptoassets can only be disposed of if the exchange recognizes the new cryptoassets. If the exchange does not recognize the new cryptoasset it does not change the position for the blockchain, which will show an individual as owning units of the new cryptoasset. HMRC will consider cases of difficulty as they arise,” it stated.

The guidance is the most comprehensive detail published on cryptocurrency taxation from HMRC to date, with further guidance expected in the coming weeks.