Tuesday, February 25, 2020

HMRC Releases Updated Tax Guidelines on Digital Assets

Adedamola Bada
I'm Damola, a computer engineer from Obafemi Awolowo University. A crypto enthusiast, marketer, and writer who is seeking to achieve career excellence through hard work and positive contribution to the organization that aspires for excellence. Contact me on damolabada@gmail.com

The United Kingdom’s tax agency,  Her Majesty’s Revenue and Customs (HMRC), has issued specific guidelines which will serve as a guide for digital assets investors on how they should view their cryptocurrencies as well as how to proceed with tax payments.

The updated guidelines aim to help token owners to carry out their taxation obligations by clearing up the uncertainties that exist in the taxation of digital assets.

The agency’s report titled “Cryptoassets for Individuals” stated that digital assets should be regarded more as property and assets than just as money. This viewpoint is quite different from that of individuals who believe that cryptocurrencies are a currency form.

HMRC notes in the paper introduction;

“The tax treatment of crypto assets continues to develop due to the evolving nature of the underlying technology and the areas in which crypto assets are used. As such, HMRC will look at the facts of each case and apply the relevant tax provisions according to what has taken place (rather than by reference to terminology). Our views may evolve further as the sector develops.”


Digital Assets, Not Money

At the moment, there is no information contained in the paper concerning the responsibilities of crypto-related firms and businesses, though there is a confirmation from the authorities that details of that nature will appear later.

The report went ahead to make it clear that the UK government and the tax agency of the country does not regard cryptocurrencies as a money form and that after an investigation was carried out by a task force, it was discovered that tokens exist in three types only and they include: security tokens, utility tokens, and exchange tokens.

The report writes that from now onward; every taxable token will be defined in accordance to its creation purpose and not only by its official title. This decision is in line with what is feasible in most nations, where digital tokens are developed by companies and sold as utilities while they are securities.

More particularly, the report included that individuals will be required by law to pay for Capital Gains Tax (CGT) or Income Tax (IT), based on the type of digital assets and crypto-related transactions they participated.

Concerning workers who receive their salaries or wages in the form of cryptocurrency, they will be required to pay for social security contributions called National Insurance (NI).

According to the report, the position of HMRC concerning tax liability for digital assets stolen or lost remains clear. In such a scenario, the HMRC states that the assets continue to belong to the victim who has the right to reclaim them. Following this, their CGT responsibilities will remain until such a time whereby the lost assets can no longer be accessed.

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