British Tax Authority Updates Cryptocurrency Guidelines, Says It Is Not Money

[vennali]

The United Kingdom’s tax, payments and customs authority, Her Majesty’s Revenue and Customs (HMRC), has updated its cryptocurrency taxation guidelines for businesses and individuals.

On Nov. 1, the U.K. government tax agency, which manages taxes alongside other financial policies, released tax guidance updates that further clarify its stance on how businesses and individuals involved with cryptocurrency will be taxed. 

Read more HERE

[stompix]

Full text here:
https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-tax-for-businesses#trading-in-exchange-tokens

A few things besides the whole trade exchange tax stuff is interesting and I do like it, one is about home (hobby) mining

For example, using a home computer while it has spare capacity to mine tokens would not normally amount to a trade. However, purchasing a bank of dedicated computers to mine tokens for an expected net profit (taking account the cost of equipment and electricity) would probably constitute trading activity. If the mining activity does not amount to a trade, the value (at the time of receipt) of any cryptoassets awarded for successful mining will generally be taxable as miscellaneous income, with any appropriate expenses reducing the amount chargeable.

If the miner keeps the awarded assets, they may have to pay Capital Gains Tax or Corporation Tax on chargeable gains when they later dispose of them.

So, there is a room for a bit of mining avoiding taxes while keeping a low profile, especially since there will be no VAT on crypto sales.

Also, there is a paragraph of allowable costs:

Certain costs can be allowed as a deduction when calculating if there’s a gain or loss, which include:
<>
advertising for a purchaser or a vendor

Does this mean you can deduct localbitcoin fees?
In all, it seems like they've done their homework quite diligently, they are covering everything, even hard and soft forks and airdrop.

As for the whole crypto is not money, nobody really gives a damn about semantics as long as they are making it legal to buy/sell/mine/use.

[BrewMaster]

As for the whole crypto is not money, nobody really gives a damn about semantics as long as they are making it legal to buy/sell/mine/use.

it is only the tax authorities and they are categorizing bitcoin as "not money" because it makes it possible and a lot easier for them to then categorize it under their tax laws.
if they said "bitcoin is money" then they either have to don't tax bitcoin or tax any other form of money too. like when you convert your fiat to PayPal you would have to pay taxes!

[Juggy777]

Full text here:
https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-tax-for-businesses#trading-in-exchange-tokens

A few things besides the whole trade exchange tax stuff is interesting and I do like it, one is about home (hobby) mining

For example, using a home computer while it has spare capacity to mine tokens would not normally amount to a trade. However, purchasing a bank of dedicated computers to mine tokens for an expected net profit (taking account the cost of equipment and electricity) would probably constitute trading activity. If the mining activity does not amount to a trade, the value (at the time of receipt) of any cryptoassets awarded for successful mining will generally be taxable as miscellaneous income, with any appropriate expenses reducing the amount chargeable.

If the miner keeps the awarded assets, they may have to pay Capital Gains Tax or Corporation Tax on chargeable gains when they later dispose of them.

So, there is a room for a bit of mining avoiding taxes while keeping a low profile, especially since there will be no VAT on crypto sales.

Also, there is a paragraph of allowable costs:

Certain costs can be allowed as a deduction when calculating if there’s a gain or loss, which include:
<>
advertising for a purchaser or a vendor

Does this mean you can deduct localbitcoin fees?
In all, it seems like they've done their homework quite diligently, they are covering everything, even hard and soft forks and airdrop.

As for the whole crypto is not money, nobody really gives a damn about semantics as long as they are making it legal to buy/sell/mine/use.

@stompix UK has indirectly legalised bitcoins, and has used clever words to cover it up by claiming crypto’s are not money. I also liked the loophole where people can mine and hodl bitcoins, but won’t need to pay taxes on it. If you’re residing there then it’s best to ask your financial advisor regarding local bitcoin fees, but reading the quotesd text I feel you can deduct it.

[chaoscoinz]

The United Kingdom’s tax, payments and customs authority, Her Majesty’s Revenue and Customs (HMRC), has updated its cryptocurrency taxation guidelines for businesses and individuals.

On Nov. 1, the U.K. government tax agency, which manages taxes alongside other financial policies, released tax guidance updates that further clarify its stance on how businesses and individuals involved with cryptocurrency will be taxed.  

Read more HERE

In the United States, cryptocurrency is treated like a commodity or property type of asset. You have to pay capital gains or regular income tax depending on whether your assets are investment income or earned income. A few months ago they had finally released a real guidance for cryptocurrencies whereas people had been waiting forever for some type of leadway on how to navigate correctly.
   All that is left is for the S.E.C to work with the people on issuing clearer guidance than just telling people to do a Howey test in order to determine whether or not a coin/token is a security.
  

[blckhawk]

Taxing every single one in an exchange isn't going to be easy. However, exchanges and companies that would pay tax, could pass their tax fees to the traders, like existing taxes in receipts, and just like fees everytime they trade in the platform. The government couldn't identify cryptocurrencies as money since there's no real asset to back it up, it only exists digitally. The value is by supply and demand. So it's more of an asset than money, like a share in a company listed in stock market.

[gentlemand]

it is only the tax authorities and they are categorizing bitcoin as "not money" because it makes it possible and a lot easier for them to then categorize it under their tax laws.
if they said "bitcoin is money" then they either have to don't tax bitcoin or tax any other form of money too. like when you convert your fiat to PayPal you would have to pay taxes!

So far BTC has been treated like foreign currency in UK tax terms. Profits from any foreign currency fluctuations are subject to capital gains taxes just as BTC is. It looks like not much has changed.

[stompix]

if they said "bitcoin is money" then they either have to don't tax bitcoin or tax any other form of money too. like when you convert your fiat to PayPal you would have to pay taxes!

Aren't they already doing this?

Bank accounts denominated in a currency other than sterling are chargeable assets for
CGT. There is an exemption from CGT for certain funds held in these accounts held by
individuals, but not all. This means that every withdrawal, however small or large, of funds
from accounts that are not exempt funds constitutes a part disposal of the account on which
a capital gain or loss can arise as a result of movements in currency exchange rates.

Every time I start digging about how tax and capital gains work in some other country I'm getting headaches from all the laws that are updated and articles added and the language they use to make things worse...
Bottom line, anyone from the UK around here that knows if gains from liquidation of foreign currency are taxed?
Lol @gentlemand ninja posting

[teosanru]

Full text here:
https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-tax-for-businesses#trading-in-exchange-tokens

A few things besides the whole trade exchange tax stuff is interesting and I do like it, one is about home (hobby) mining

For example, using a home computer while it has spare capacity to mine tokens would not normally amount to a trade. However, purchasing a bank of dedicated computers to mine tokens for an expected net profit (taking account the cost of equipment and electricity) would probably constitute trading activity. If the mining activity does not amount to a trade, the value (at the time of receipt) of any cryptoassets awarded for successful mining will generally be taxable as miscellaneous income, with any appropriate expenses reducing the amount chargeable.

If the miner keeps the awarded assets, they may have to pay Capital Gains Tax or Corporation Tax on chargeable gains when they later dispose of them.

So, there is a room for a bit of mining avoiding taxes while keeping a low profile, especially since there will be no VAT on crypto sales.

Also, there is a paragraph of allowable costs:

Certain costs can be allowed as a deduction when calculating if there’s a gain or loss, which include:
<>
advertising for a purchaser or a vendor

Does this mean you can deduct localbitcoin fees?
In all, it seems like they've done their homework quite diligently, they are covering everything, even hard and soft forks and airdrop.

As for the whole crypto is not money, nobody really gives a damn about semantics as long as they are making it legal to buy/sell/mine/use.

This was pretty interesting and I almost knew that they won't be able to tax the income still not realised by miners in Fiat because it's pretty hard to trace such income for authorities unless they go on to subpoena it. Coming to the case of expenses. It's always been a very subjective issue for most of the business about what expenses to claim. In general I advise my clients to claim all expenses which they have used until they have realized the income in their account as Expenses. This may include any transaction fees any local bitcoin fees. Infact i recommend people to take turnover on the basis of actual receipts in the bank.

[gentlemand]

This was pretty interesting and I almost knew that they won't be able to tax the income still not realised by miners in Fiat because it's pretty hard to trace such income for authorities unless they go on to subpoena it.

Almost all of the time tax is taken on trust anyway. It would require something pretty radical for them to investigate you.

It seems like a sensible policy regarding mining. Obviously no tax at all would be rather better but at least they're not as stupid or unworldly as other countries who attempted to put VAT on it.

[hugeblack]

It has pointed to some tax applications on individuals but I have not read any partial on individuals. Tax restrictions for exchanges & businesses.

The tax authority explicitly stated that it does not consider any of the current types of cryptocurrencies to be money or currency.

Failure to recognize it as a currency does not invalidate its legality but distracts the government from regulatory restrictions relating to financial transactions.
The bad thing is to recognize tokens without setting the definition of them.
Also, I don't think the regulatory law touched on Hard-forks.

BTW: move this topic to Legal

[BitHodler]

The government couldn't identify cryptocurrencies as money since there's no real asset to back it up, it only exists digitally. The value is by supply and demand. So it's more of an asset than money, like a share in a company listed in stock market.

Money---fiat isn't backed by any asset either, it largely just exists in digital form. Cash accounts for 2-3% of the fiat in existence according to some articles I read throughout the years, and even that I think is too high of a guesstimate.

Bitcoin at least is backed by the electricity needed to mine a single coin, which hovers between $7000-$8000 on average, while most fiat is issued digitally in an instant, so billions of thin air dollars require $0.000xx in electricity to produce.

Paper money at least requires electricity plus a special form of paper to produce, and it looks good too in most cases. It can be held physically, spent without internet or being censored, and so on.... only advantages.

[Pearls Before Swine]

Does this mean you can deduct localbitcoin fees?

Probably not, lol.  And also, thank you for quoting the relevant parts of the article since I didn't feel like clicking on the link.

Britain is freaking tough, man.  I'm no accountant but these declarations make it seem like you would need a full time accountant just to own bitcoin, much less mine it.  I think the U.S. considers bitcoin to be an asset rather than money as well, tho I'm not entirely sure of that.  I wouldn't know where to find this out, and I don't ever recall any threads on the forum about it.

England, home of the omnipresent CCTV cameras and anti gun laws.  I'm not saying my country is ideal, because it isn't by any means but I much prefer it where I am and would not want to live in GB. 

[hotmom]

Does this mean that the laws that apply to monetary units are not applicable to cryptocurrencies?

[Kprawn]

I rather like the tax authorities that are leaving room for taxation based on "currency" use, so they can tax VAT on all transactions where

Bitcoin is used as a currency to pay for something and they can take Capital Gains when you use it as a commodity. The thing is that most of

these countries does not want to give Bitcoin a legal status as a currency, because it challenges the status of their local reserve currencies.

Another pathetic attempt to protect local fiat currencies. 

[CLS63]

It didn't surprise me that British Tax Authority says Bitcoin is not real money. We have seen similar statements from some other places too. They just see fiat currencies as real money but I believe it will change in the future.

[teosanru]

This was pretty interesting and I almost knew that they won't be able to tax the income still not realised by miners in Fiat because it's pretty hard to trace such income for authorities unless they go on to subpoena it.

Almost all of the time tax is taken on trust anyway. It would require something pretty radical for them to investigate you.

It seems like a sensible policy regarding mining. Obviously no tax at all would be rather better but at least they're not as stupid or unworldly as other countries who attempted to put VAT on it.

Haha yeah VAT on crypto is really weird because there is no transfer of good or service taking place. Moreover if they would enable VAT on mining I would love to see VAT on other financial instruments too for example Shares, futures etc. So obviously it's better to never have VAT on Cryptocurrencies.

It didn't surprise me that British Tax Authority says Bitcoin is not real money. We have seen similar statements from some other places too. They just see fiat currencies as real money but I believe it will change in the future.

Actually they are correct in their approach. If definition of money was based on what every community thinks then we would even think farm produces as money because most of the farmers still do this barter.

[gentlemand]

It didn't surprise me that British Tax Authority says Bitcoin is not real money. We have seen similar statements from some other places too. They just see fiat currencies as real money but I believe it will change in the future.

It doesn't matter what they think of as 'real money'. The only thing that matters is value and how it moves. You could be paid in someone's idiot cousin's finger paintings and they'll tack a value on to it and tax accordingly if they identify it as income.

[audaciousbeing]

I think the tax authority is being careful with words because the word 'money' connotes something significant and the moment an item is being designated as such, it becomes a legal tender and series of events will have to follow among which include an Act of Parliament backing such, institutions adjusting their payment platforms and most importantly being accepted by fellow countryman as a medium of exchange. While we are not there yet, I think its good to rejoice in the recognition which they have mentioned as that alone signify that the attention of authorities and institutions that matters is being sought and in no distant time, things will change significantly for the better.

[gentlemand]

I think the tax authority is being careful with words because the word 'money' connotes something significant and the moment an item is being designated as such, it becomes a legal tender and series of events will have to follow among which include an Act of Parliament backing such, institutions adjusting their payment platforms and most importantly being accepted by fellow countryman as a medium of exchange.

Legal tender is separate from money. Northern Irish and Scottish bank notes aren't legal tender in England. Scottish bank notes aren't even legal tender in Scotland. Legal tender's definition is a narrow one. Tons of stuff can be called money without being legal tender and it's easy to think many a Bitcoin fan doesn't regard it as money either.

This wee angle isn't super relevant.

[malevolent]

So far BTC has been treated like foreign currency in UK tax terms. Profits from any foreign currency fluctuations are subject to capital gains taxes just as BTC is.

Only if you sell or are you taxed even if you hold bitcoins which have appreciated in value?

Almost all of the time tax is taken on trust anyway. It would require something pretty radical for them to investigate you.

It seems like a sensible policy regarding mining. Obviously no tax at all would be rather better but at least they're not as stupid or unworldly as other countries who attempted to put VAT on it.

These countries (in the EU and probably within the EEA as a whole) even if they wanted to can thankfully no longer do it since the EU Court of Justice has rules otherwise.

[squatter]

If the mining activity does not amount to a trade, the value (at the time of receipt) of any cryptoassets awarded for successful mining will generally be taxable as miscellaneous income, with any appropriate expenses reducing the amount chargeable.

If the miner keeps the awarded assets, they may have to pay Capital Gains Tax or Corporation Tax on chargeable gains when they later dispose of them.

So, there is a room for a bit of mining avoiding taxes while keeping a low profile, especially since there will be no VAT on crypto sales.

Is there a "trade" or "self-employment" tax in the UK that hobby miners are able to avoid? They still appear to be liable for taxes on mining receipts as ordinary income, plus capital gains tax if they benefit from appreciation.

This means that any Corporation Tax legislation which relates solely to money or currency does not apply to exchange tokens or other types of cryptoasset. For example:

    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)

What exactly are the implications of this for Bitcoin traders?

[stompix]

Is there a "trade" or "self-employment" tax in the UK that hobby miners are able to avoid? They still appear to be liable for taxes on mining receipts as ordinary income, plus capital gains tax if they benefit from appreciation.

Obviously gentlemand is far more qualified to answer this so I'll let him go through the details but I do share his view, as my first impression was that large scale mining is also subject to corporation tax.
If you keep a low profile and don't do anything on a large scale nobody is going to start analyzing your finances and taxes, and obviously a few s17 more or less won't bring you that much profit to tip the scale that much.

In theory, you would have to pay tax for every gain, and that is everywhere but who does?
I did pay some income tax for the amount I withdraw via my bank account, did I say anything about the gains from the CM?
Don't know anything about that man!!!  

These countries (in the EU and probably within the EEA as a whole) even if they wanted to can thankfully no longer do it since the EU Court of Justice has rules otherwise.

Speaking of the EU, imagine having to pay income tax on foreign currency gains with 18 currencies instead of the euro...

[CryptoBry]

The United Kingdom’s tax, payments and customs authority, Her Majesty’s Revenue and Customs (HMRC), has updated its cryptocurrency taxation guidelines for businesses and individuals. On Nov. 1, the U.K. government tax agency, which manages taxes alongside other financial policies, released tax guidance updates that further clarify its stance on how businesses and individuals involved with cryptocurrency will be taxed. 

We should be happy with this latest updates on the taxation system implemented by the UK government comprehensively covering many areas related to cryptocurrency. At least, people of Britain now has a clear view on what to do and how tax can be calculated from hereon. Updates like this should be considered as milestones in the continuing history and adoption of cryptocurrency all over the world.

One of the many good things about getting recognized by the tax agency is that the asset is hereon considered to be legal. Just like the stance of the US government, cryptocurrency is still not considered as money in the UK but that is not very critical for now. Money or not, we know that when merchants are accepting Bitcoin the function is the same.

[malevolent]

Obviously gentlemand is far more qualified to answer this so I'll let him go through the details but I do share his view, as my first impression was that large scale mining is also subject to corporation tax.

No corporation tax if you don't incorporate, only personal income taxes then apply to a private person or that + social security taxes if it's a sole proprietorship/self-employment.

[gentlemand]

Speaking of the EU, imagine having to pay income tax on foreign currency gains with 18 currencies instead of the euro...

Unless you were a full time forex trader and even then it might qualify as gambling, it would be capital gains that applied in the UK and you have an allowance of about £11,000 per year.

If you happened to make a vast amount with your foreign currency just sitting there then it stands to reason that they'll go after it.

I'll bet more than a few people were caught out by the Brexit referendum result when it suddenly plunged. If you were in Euros or whatever during a house sale that might have been an unwelcome surprise.

Obviously gentlemand is far more qualified to answer this so I'll let him go through the details.

I've burnt everything the tax man has ever attempted to send me so look elsewhere for an expert.

[alyssa85]

Full text here:
https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-tax-for-businesses#trading-in-exchange-tokens

A few things besides the whole trade exchange tax stuff is interesting and I do like it, one is about home (hobby) mining

For example, using a home computer while it has spare capacity to mine tokens would not normally amount to a trade. However, purchasing a bank of dedicated computers to mine tokens for an expected net profit (taking account the cost of equipment and electricity) would probably constitute trading activity. If the mining activity does not amount to a trade, the value (at the time of receipt) of any cryptoassets awarded for successful mining will generally be taxable as miscellaneous income, with any appropriate expenses reducing the amount chargeable.

If the miner keeps the awarded assets, they may have to pay Capital Gains Tax or Corporation Tax on chargeable gains when they later dispose of them.

So, there is a room for a bit of mining avoiding taxes while keeping a low profile, especially since there will be no VAT on crypto sales.

Also, there is a paragraph of allowable costs:

Certain costs can be allowed as a deduction when calculating if there’s a gain or loss, which include:
<>
advertising for a purchaser or a vendor

Does this mean you can deduct localbitcoin fees?
In all, it seems like they've done their homework quite diligently, they are covering everything, even hard and soft forks and airdrop.

As for the whole crypto is not money, nobody really gives a damn about semantics as long as they are making it legal to buy/sell/mine/use.

This was pretty interesting and I almost knew that they won't be able to tax the income still not realised by miners in Fiat because it's pretty hard to trace such income for authorities unless they go on to subpoena it. Coming to the case of expenses. It's always been a very subjective issue for most of the business about what expenses to claim. In general I advise my clients to claim all expenses which they have used until they have realized the income in their account as Expenses. This may include any transaction fees any local bitcoin fees. Infact i recommend people to take turnover on the basis of actual receipts in the bank.

British tax authorities like to make things easy for themselves - so taxing only when converting into fiat makes sense.

Also, the govt would quite like the City of London to become a cryptocurrency hub as well, so it's important not to squelch a new industry at birth. Especially if the EU goes in the opposite direction.

[barbara44]

The United Kingdom’s tax, payments and customs authority, Her Majesty’s Revenue and Customs (HMRC), has updated its cryptocurrency taxation guidelines for businesses and individuals.

On Nov. 1, the U.K. government tax agency, which manages taxes alongside other financial policies, released tax guidance updates that further clarify its stance on how businesses and individuals involved with cryptocurrency will be taxed. 

Read more HERE

For now, it is just few government that are accepting cryptocurrency as money while majority of them would prefer to see it as a digital asset which is why they also became interested in it having known that people use it for speculative purpose more, so you see why they are not so much threatened by it as much as they are even threatened about the Libra project.

It is for that reason that they became more interested in taxing it knowing completely well also that it could generate lots of money from them from the usage and from their trades that occurs through it. I see this s good move also, because it would not stop people from still using it as means of payment while the government should focus on the tax, before they know it, it will automatically become means of payment which would have been too late for them to stop it.