The Department of Finance and Customs of Her Majesty (HMRC) has updated its guidelines regarding the taxation of transactions involving cryptographic assets. The UK tax administration clarifies its position on cryptocurrencies and explains which taxes apply to specific activities by commercial entities and individuals.
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Listed taxable activities
There are now many tax tools to help cryptography users and businesses in the sector with the tax return. But in a field as fluid as crypto-space, regulations are changing rapidly. On November 1, the HMRC released updated policy documents regarding cryptographic transactions by businesses, other businesses such as independent contractors and partnerships, and individuals.
The agency notes that the documents deal with the tax treatment of "tokens of exchange", explicitly mentioning bitcoin. They do not apply to tokens issued in initial coin offers (ICOs). The taxation of security and utility tokens will be treated separately in the future. Taking into account the specificities of the rapidly changing sector, the HMRC stated that it would review each case and apply the relevant provisions.
The tax office has listed a number of activities related to cryptography that entail tax obligations. These include the buying, selling and trading of tokens for other assets, including crypto-currencies. The extraction of crypto has been mentioned as a taxable economic activity. Companies that provide goods or services in exchange for digital coins also have to pay taxes to the UK government.
The guidelines also review applicable taxes and corporations carrying on any of the above activities may pay one or more of the following taxes: capital gains tax, corporation tax, income tax, value-added tax VAT and stamp taxes. National insurance contributions are also due.
Individuals will be required to pay capital gains tax when they sell cryptographic assets acquired as a personal investment, or contributions to income tax and national insurance on coins. they will receive from employers, mining companies or aerodromes. Traders can reduce their income taxes by offsetting losses by future profits. The amount paid for an asset is considered a cost that can be deducted. The loss of a private key, however, does not count as an assignment of assets for the purpose of capital gains tax. Theft victims can not claim a loss either.
Cryptocurrency not money
HMRC deals with other important aspects of taxation regarding cryptographic transactions. The authorities point out that taxable profits, and losses, respectively, must be calculated and reported in pounds sterling in corporate and personal income tax returns. In the case where a transaction does not include GBP, an "appropriate exchange rate" must be established to convert the transaction into a trust.
The agency does not clearly explain what it would consider an "appropriate" assessment, but stresses that a "consistent method" should be used. The documents also emphasize that the profits generated by a cryptographic transaction must be calculated in accordance with generally accepted accounting practice in the United Kingdom (UK GAAP) or International Accounting Standards (IAS).
The obligation to keep fiat equivalent records is linked to the current position of the tax service on decentralized cryptocurrencies. "It is important to note that HMRC does not consider any of the current types of crypto-assets as money or a currency. This means that any corporation tax legislation that relates only to money or currencies does not apply to trading tokens or other types. of cryptoassets, "stresses the administration.
However, the tax regulator notes that "if an employer" pays "trading tokens as an employee's earnings, these trading chips count for" a monetary value "." In other words, encrypted salaries paid in the United Kingdom are subject to income tax and National insurance contributions on the fiat value of cryptocurrency used for remuneration.
What is your opinion on the new UK cryptographic taxation guidelines? Tell us what you think in the comments section below.
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