HMRC’s latest guidance on cryptoassets
Susan Cattell highlights the publication of the long awaited HMRC guidance on cryptoassets for business. This is the latest instalment of HMRC guidance on the tax treatment of cryptoassets – but it won’t be the last.
A brief history of HMRC guidance on cryptoassets
Bitcoin, probably the most well-known cryptocurrency, appeared in 2009. Since then HMRC and regulators have been trying to catch up. In 2014 HMRC issued brief initial guidance in Revenue and Customs Brief 9 (2014): Bitcoin and other cryptocurrencies. HMRC has also held extensive discussions with stakeholders (including ICAS); these led to the development of detailed guidance which has effectively superseded the 2014 Briefing.
The first detailed guidance – on the taxation of cryptoassets for individuals appeared in December 2018. One important development since 2014 was that this guidance stated that: “HMRC does not consider the buying and selling of cryptoassets to be the same as gambling.” By contrast the 2014 Brief said, “depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable. For example, gambling or betting wins are not taxable and gambling losses cannot be offset against other taxable profits.”
On 1 November 2019 HMRC published Cryptoassets: tax for businesses. There is some overlap with the guidance for individuals published last year, particularly around whether there is a trade and how to calculate chargeable gains and losses. However, the latest guidance will be essential reading for businesses and their advisers, as it looks at the business perspective and includes substantial new material. Some important issues covered in the guidance are outlined below.
Scope of the guidance for businesses
The guidance explains HMRC’s view of the taxation of transactions involving cryptoasset exchange tokens (for example, bitcoin) undertaken by companies and other businesses (including sole traders and partnerships). It doesn’t cover other types of cryptoasset, such as security tokens and utility tokens. It also does not apply to the issue of tokens under initial coin offerings or other similar events.
It is worth noting that HMRC states that its views may evolve further because the cryptoassets sector is fast moving and developing all the time. As a result, the terminology, types of coins, tokens and transactions can vary. HMRC will therefore look at the facts of each case and apply the relevant tax provisions according to what has actually taken place (rather than by reference to terminology).
HMRC does not consider any of the current types of cryptoassets to be money or currency. Therefore, any Corporation Tax legislation which relates solely to money or currency does not apply to exchange tokens or other types of cryptoasset – HMRC gives three examples:
- the foreign currency rules (section 328 of the Corporation Tax Act 2009)
- the Disregard Regulations relating to exchange gains and losses (Statutory Instrument 2004/3256)
- designated currency elections (section 9A of the Corporation Tax Act 2010)
If the activity concerning the exchange token is not a trading activity, and is not charged to Corporation Tax in another way (such as the non-trading loan relationship or intangible fixed asset rules) then the activity will be the disposal of a capital asset and any gain that arises from the disposal would typically be charged to Corporation Tax as a chargeable gain.
The guidance includes further detailed sections on both loan relationships and intangible fixed assets.
HMRC does not appear to have significantly changed its views on VAT and cryptoassets since 2014. However, the new guidance does include a discussion of bitcoin exchanges in the light of the CJEU decision in a Swedish case, David Hedqvist (C-264/14).
It is worth noting that (as in 2014) HMRC does make an important caveat: “the VAT treatments outlined above are provisional pending further developments; in particular, in respect of the regulatory and EU VAT positions.”
Stamp Duty and Stamp Duty Reserve Tax
HMRC notes that for transfers of exchange tokens to fall within the scope of Stamp Duty or Stamp Duty Reserve Tax, they would need to meet the definition of ‘stock or marketable securities’ or ‘chargeable securities’ respectively. It goes on to say that this will be considered on a case-by-case basis, dependent on the characteristics and nature of the cryptoasset, rather than any labels attached to them. However, importantly it also says that at the date of publication of the guidance, HMRC’s view is that existing exchange tokens would not be likely to meet the definition of ‘stock or marketable securities’ or ‘chargeable securities’.
There is also some discussion of the position where exchange tokens are given as consideration for purchases of stock or marketable securities and/or chargeable securities. Broadly, this would count as money’s worth so would be chargeable to SDRT – the tax due would be based on the sterling value of the exchange tokens at the relevant date.
Stamp Duty Land Tax
HMRC does not consider transfers of exchange tokens to be land transactions. Therefore, SDLT will not be payable on such transfers. However, chargeable consideration for the purposes of SDLT comprises anything given for the transaction that is ‘money or money’s worth’. Accordingly, if exchange tokens are given as consideration for a land transaction, these would fall within the definition of ‘money or money’s worth’ and so be chargeable to Stamp Duty Land Tax.
The guidance also includes sections on the qualifying conditions of the Venture Capital Scheme; Paying employees in cryptoassets and Tax Reliefs.
More guidance to come – and possibly some legislation
As outlined above this guidance only covers exchange tokens. HMRC states that there will be guidance in future to address other types of cryptoasset, such as security and utility tokens.
Another significant gap in the existing guidance is the situs of cryptoassets. Stakeholders have suggested to HMRC that this is an area where legislation may be required, but this is unlikely to materialise in the short term.
Let ICAS know what you think
ICAS attends HMRC’s stakeholder roundtable on cryptoassets; we would welcome members’ input on issues to be raised with HMRC and any feedback on the published guidance.