Her Majesty’s Revenue and Customs (HMRC), a non-ministerial department of the British government in charge of the collection of taxes, has published a paper highlighting the various types of fees applicable to blockchain-based virtual currencies and how cryptocurrency traders should handle their cryptos, according to a report released December 20, 2018, by the agency.
Cryptoassets Are Properties not Money
In a bid to make it easier for digital assets holders to fulfill their tax obligations, the HMRC has published revised guidance explaining in detail its approach for taxing individual cryptocurrency investors who buy and sell the nascent asset class.
As reported by BTCManager earlier in October 2018, the U.K. Cryptoassets Taskforce made up of the Financial Conduct Authority (FCA), the Bank of England, and the HM Treasury, published the final report on digital assets, stipulating that cryptoassets are not currencies but fall under three broad categories: exchange tokens, utility tokens, and security tokens.
Holders Must Pay CGT or Income Tax
As contained in the document, HMRC has said that the small-scale buying and selling of cryptoassets by individuals can be categorized as an investment activity, and as such, it attracts a Capital Gains Tax (CGT).
However, it further stated that if the transaction is considered to be trading, then the trader will be required to pay income tax on his profit and losses, instead of a CGT.
In essence, individuals residing in the UK who get paid in bitcoin and other digital assets by their employers, carry out cryptocurrency mining operations, or receive airdrops for services rendered to blockchain projects, are liable to pay income tax and national insurance contributions.
The agency also advised that cryptoassets holders need to accurately calculate their gain or loss when they dispose of their digital assets by way of selling them for money, swapping them for other cryptoassets, using them to make payments or sending them to another person, to find out whether they need to remit CGT.
Although the agency has made it clear that this revised guidance only applies to individual crypto traders, it has however reportedly hinted it would formulate new guidelines for bitcoin and altcoin-linked businesses and companies shortly.
With bitcoin and other distributed ledger technology (DLT) powered virtual currencies becoming more and more ubiquitous with each passing day, authorities have been working around the clock to get their fair share of the cake via taxes.
In November 2018, BTCManager informed that the Spanish tax authority, AEAT, had intensified efforts to curb crypto tax evasion by requesting the names and trading data of cryptocurrency investors from 60 crypto-based firms in the region.