In 2019, the UK Tax and Customs Service (HMRC) issued a set of rules according to which the taxation of cryptocurrency and transactions with it will be carried out. This news surprised few people. As the price of tokens increased, their owners and representatives of the industry were prepared for the fact that the financial authorities of different countries would want to impose taxes on such transactions.
HMRC has published new guidelines this year 2021. It contains explanations and recommendations for legal entities and individuals. Also, for the first time in the set of rules, it is about loans issued against the security of cryptocurrency.
Cryptocurrency and loans
As the department explained, loans secured by cryptocurrencies are a type of credit relationship. They should be regulated taking into account the standard rules. But there are certain subtleties here.
But the lender and the borrower do not have a credit relationship in their traditional sense. This is explained by the fact that there is no monetary loan as such, and therefore there is no fact of a monetary transaction. Cryptocurrency cannot be considered as a fiat currency in this case. Therefore, traditional regulation cannot be applied here. The new guide covers this issue in detail.
Otherwise, UK taxes on cryptocurrency remain the same as in the 2019 version of the document. The following digital currency transactions are subject to:
- purchase and sale;
- exchange for other assets;
- mining;
- sale of goods and services.
How much should be transferred to the state treasury is determined based on the amount of income/expense, as well as the net profit of the enterprise. Determination of the taxation format will be carried out for each specific declaration. One or several taxes may be credited for payment, including:
- income tax;
- capital gains tax;
- corporate tax;
- stamp duty;
- VAT;
- insurance fee.
For individuals who have cryptocurrency and carry out transactions with it, income tax and insurance fees are mandatory.
Staking
In the updated document, I found explanations regarding the taxation of income received from staking in networks on PoS. They are similar to the rules that apply to mining. Not so long ago, both processes were considered interrelated, so the recommendations were identical. Now the staking is considered separately.
The new guidance states that there is a defining moment in terms of taxation of staking transactions. It depends on whether the activity is a “taxable financial transaction”. You can understand this if you study:
- the degree of activity;
- type of enterprise/organization;
- risks;
- commercial value.
The income from such a transaction is taxed as other income. If the process is carried out by an individual, taxation will be carried out in exceptional cases. According to HMRC, an individual is unlikely to engage in the purchase and sale of crypto assets with such parameters that it can be credited to a “taxable financial transaction”.
HMRC actions
The cryptocurrency of the UK and other countries has managed to change the attitude of HMRC. Now the service considers it as a full-fledged financial asset that can generate income, and therefore it is necessary to develop appropriate rules for its taxation. The Tax Service intends to continue updating the manual. The UK also has a temporary registration regime for crypto businesses. It is about companies that are awaiting approval from the regulator. The regime will be in effect until 09.07.2021.