CryptoCurrency Taxation: HMRC close loophole?

18th January 2019

HMRC are not known for being ahead of the curve, so trying to find official guidance on how exchange gains from selling bitcoin, and other crypto currencies, is expected to be self-assessed and taxed, was always going to be ‘problematic’. At the time of first researching this, the latest HMRC guidance was published in 3 March 2014. This suggested 3 possible tax treatments:

 

  1. Income tax – for individuals who buy and sell cryptocurrency as a business (with a high degree of frequency and organisation).
  2. Capital gains tax – for individuals for hold crypto currency as an investment.
  3. Non-taxable – for highly speculative transactions (akin to gambling).

 

HMRC then updated this guidance on 19 December 2018. Although the general tax principles remain the same, there is one noticeable change: HMRC now explicitly state that “HMRC does not consider the buying and selling of cryptoassets to be the same as gambling”, so option 3 above is ostensibly now removed.

 

For most instances, this will not be a problem, as the background circumstances will not support an argument that the underlying motives were akin to gambling. But take the example of a student, who comes across bitcoin in July 2013 as part of his computer sciences degree course, and so purchases £100 worth (then priced at US$68 per unit).  Four and a half years later, after all the hysteria of a typical bubble market, when the unit price peaked at US19,500, he remembers his purchase and decides to cash in (holding now worth around £30k). As this was clearly a one-off small value speculative purchase, why should this individual’s tax liability be different, dependent upon whether he completed his tax return before 19 December or after? What we have here is the holy grail of tax practitioner dislikes: retrospective legislation. Although, of course, this is not legislation, it is merely HMRC guidance, and HMRC have recently been brought to task over their other guidance incorrectly stating that all directors must submit self-assessment tax returns (even if not issued a notice to file by HMRC). So our astute ex-student now has a dilemma; what best to do?



 
Other items in Blogs
 
Lucy Bayliss
11th April 2019 £10 a day from the 1st May!

If you submitted your tax return after the filing deadline of 31 January, or you still have not submitted your tax return, then you will automatically be fined £100 for missing the deadline.   In February, HMRC announced that they would be delaying issuing the late filing penalty notices due to Brexit. They have now…

Read More »

Matilda Mawson
10th April 2019 Has your claim for marriage allowance transfer been refused?

  HMRC have recently attempted to remove a marriage allowance transfer for a couple, where the transferor had less than the 10% personal allowance unused. This treatment is incorrect as outlined below:   Background to the transfer The marriage allowance transfer was introduced from 5 April 2015 onwards and allows a person to transfer 10%…

Read More »

Lisa Smith
9th April 2019 Digital Records for VAT – HMRC Guidance published

  From 1 April 2019, most businesses with a taxable turnover above £85,000 are required to follow the rules for Making Tax Digital for VAT.  As a result, HMRC has published new guidance on record keeping, which  explains what records a business needs to keep digitally if it has signed up for Making Tax Digital…

Read More »

Ian Piper
9th April 2019 R&D Tax Relief: HMRC Try to Tackle Abuse

  Many companies, not just those in the tech industry, will have benefitted from the generosity of R&D tax relief. Eligible R&D expenditure can be inflated by a notional 230% uplift, and a refund of tax claimed on tax that was never paid in the first place. Perhaps not unsurprisingly, HMRC have identified abuses of…

Read More »

Adrian Mackenzie
25th March 2019 When doing nothing is best

From time to time, stock markets go through periods of uncertainty. This could be down to some poor economic news or perhaps due to a political crisis.  The sharp falls that can be experienced at such times are understandably unsettling for investors. They can even tempt some to change their long-term plan by selling their…

Read More »

Thomas Carter
21st March 2019 Preparing for Brexit – Do you trade within the EU?

Your UK business may need an Economic Operator Registration and Identification (EORI) number if we leave the EU with no deal.   What is an EORI number?   An EORI number is a unique identifying number assigned to individual importers and exporters to track trade between the EU and non-EU countries. It’s used during Customs…

Read More »