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Clearly, the tax position for cryptocurrency is a developing area – in terms of technology, regulation and, as if by magic, taxation.
Developing areas, as well as creating opportunities, can also provide the public, professional practitioners and regulators with uncertainty.
As we are talking tax, what activity have we seen from HMRC in this area?
Well, it seems that HMRC’sfocus thus far has largely been on the use of digital currencies for criminal purposes.
For example, its potential, perceived or otherwise, to launder illicit funds. Indeed, many peoples first association with Bitcoin will be the website Silk Road or hackers who hold your computer systems ransom unless you transfer them some Bitcoin.
Indeed, Interim Director General at HMRC, David Richardson told a Treasury Committee not so long ago that it was their assessment that use of cryptocurrencies such as Bitcoin had not resulted huge tax ‘writs’ coming to fruition. However, that it was an area that they are watching.
However, it would be wrong to say HMRC had been late to the party on this. In fact, they issued a paper back in 2014 which set out some of their thoughts. More recent advice, albeit not consistent with this earlier guidance, has further fleshed out the tax position regarding cryptoassets.
None of this guidance has attempted to set out a specific tax regime for cryptocurrencies. This is entirely the right approach and is consistent with the way in which the UK tax system works.
It is important to note that in UK tax it is not the underlying asset which primarily dictates the tax treatment but the activity. This can be seen for those involved in property and also where one is buying and selling shares.
It is the nature of the activity that will determine, say, whether something is taxed as income or a capital gain.
A case of, it ain’t what you do it’s the way that you do it.
My view is that we are one of only a handful of firms who are geared up to provide advice in this area. This might be a review of your current position, assisting with the disclosure of past transactions or helping you structure your activities in the most efficient manner.
If you think we might be able to help then please get in touch.