HMRC Crypto Taxation Guidelines at a Glance - United Kingdom
Queen of England Rules out Crypto as Currency
Following publication of new crypto taxation guidelines by the United States Internal Revenue Services; the UK has followed suit by updating its cryptocurrency taxation regulation for individuals and businesses.
The United Kingdom’s tax payments and customs authority, Her Majesty’s Revenue and customs; updated the policy paper taking a rather conservative approach. In fact, the policy stands in line with taxation guidelines from other countries. HMRC went ahead to explicitly state that it will not consider crypto as a currency , hence the policy paper adapted the term ‘crypto-assets’ rather than cryptocurrency.
The paper outlines that individuals who indulge in crypto activity are subject to capital gains tax; since it's a reflection of personal investment that would otherwise earn after selling crypto. Furthermore, in case an individual uses crypto to pay for goods or services, or when exchanging crypto for crypto.
What is Capital Gains Tax?
Many countries apply Capital Gains Tax to tax crypto activity. Especially common in Israel and the United States. However, while some countries still struggle to draw boundaries between professional trading and personal activity; HMRC explains that crypto falls under the description of business activity, and ‘only in exceptional circumstances’
The policy paper asserts that an employee’s mining activities and salary are subject to income taxation. Mining activities by individuals could also be classified under business activity. However, HMRC will only review some factors before classification, for instance risk and commerciality, degree of activity and organization.
Mining Activity Taxation
In case mining activity does not amount to a trade instance, any further crypto reward for successful mining - or rather mining fee - becomes taxable income.
If the activity falls under the classification of business activity; then what is due is either VAT or corporate tax. Where an individual did not sell immediately and received cryptocurrency rewards; they will be subject to capital gains tax once they sell/exchange the crypto asset.
On the other hand, Airdrops could be capital gains or income tax depending on the prevailing circumstances. In case, a firm awards the airdrops due to a chain split, or an instance that does not include payment for providing a service . This will be treated as capital gains tax. Where it is unrelated to capital gains tax and relates to some other service or stated conditions, it is taxed as income.
You can find out more about the updated policy at the HMRC site.
About The Author
Richard M AdrianBlockchain Analyst with a demonstrated history of working in the writing and editing industry. Skilled in WordPress, Editing, SEO Copywriting, Copy Editing, and Blog Marketing. When I am not writing, analyzing bulls/bears - I will be listening to music, reading a thrilling novella or hiking. Email me at Richardmadrian@gmail.com - And we could talk about anything - business or dragons.
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