UK Tax treatment of Crypto-Assets for Businesses

HMRC published a guidance note last year (see our article) on the taxation of cryptocurrencies for individuals. They have now produced a similar document for businesses (see gov.uk website). The HMRC's approach in this policy paper is, as expected, conservative, and it stands in line with other countries’ tax treatment for cryptocurrencies. It's noteworthy however that the HMRC explicitly states that it does not consider crypto as a currency, and the policy paper is careful to use the term "crypto-asset" instead of "cryptocurrency" throughout.

Corporation Tax

Where a token/crypto-asset is being used in a trading activity, companies are to be taxed on their trading profits. Profits need to be calculated in GBP therefore all transactions need to be converted into GBP at the time of the transaction.

Where a token/crypto-asset is used in a non-trading activity, it is be treated as an investment and so any gain on disposable is to be subject to CT on chargeable gains. Some but not all costs can be allowed as a deduction when calculating the gain. Cost of mining for example is not allowed unless the mining activity is done as a trade. The calculation method is following section 104 of the TCGA 1992 i.e. using a pool per asset class but with slightly different anti-bed-and-breakfast rules (a sale is matched against the pool unless a purchase happen in the next 10 days – and not 30 as usual). And in case of a hard fork, cost base needs to be split on a "just and reasonable" basis.

VAT

As expected, most transactions involving crypto-assets won't attract VAT:

• Exchange tokens received by miners are out of scope
• When exchange tokens are exchanged for goods or services not VAT is due on the supply of the token
• Any charges or fees made over the value of the tokens are VAT exempt

The VAT treatments outlined above are provisional however pending further developments especially in respect of the regulatory and EU VAT positions.

Paying employees in crypto-assets

Again, as expected, if an employer ‘pays’ exchange tokens as earnings to an employee, those exchange tokens count as ‘money’s worth’ and are subject to Income Tax and National Insurance contributions on the value of the asset.

Stamp Duty and Stamp Duty Reserve Tax

At the date of publication of their paper, HMRC’s view is that existing exchange tokens would not be likely to meet the definition of ‘stock or marketable securities’ or ‘chargeable securities’ and therefore not subject to Stamp Duty.