The UK tax authority, HM Revenue & Customs has published a policy paper on the taxation of transactions involving cryptoasset exchange tokens by companies and other businesses. Guidance on security and utility tokens will follow.
The guidance confirms that:
- The calculation of taxable profits or losses must be in sterling. Therefore, transactions involving exchange tokens without a sterling value must be converted using an appropriate exchange rate at the time of the transaction.
- Whether activities involving exchange tokens constitute trading depends on the normal tests. Mining activities may be regarded as trading. If exchange tokens are held as investments, any gain arising on their disposal will be a chargeable gain (unless, in the context of corporation tax the non-trading activity is charged to corporation tax under the intangible fixed asset or, rarely, the loan relationship rules). There are specific rules for cryptoassets created by hard forks and airdropped cryptoassets.
- HMRC does not regard cryptoassets as currency, money or, because there is typically no counterparty standing behind the token, debt. Therefore, corporation tax legislation that applies to currency, money or debt does not apply to cryptoassets. However, the loan relationship rules would apply to ordinary loans backed by exchange tokens as security.
- The guidance also updates HMRC’s 2014 guidance on the VAT treatment of Bitcoin and similar cryptocurrencies, although it remains provisional. It says that VAT is due in the normal way on any goods or services sold in exchange for cryptoasset exchange tokens, the exchange of bitcoin for legal tender and vice versa is an exempt financial transaction and that a supply of any services required to exchange exchange tokens for legal tender (and vice versa) will also be exempt.
- The guidance confirms HMRC’s view that the transfer of exchange tokens would not be subject to stamp duty or stamp duty reserve tax (SDRT) because exchange tokens are unlikely to meet the definition of “stock” or “marketable securities” and that tokens given in consideration for stock or marketable securities or land would be considered money’s worth for SDRT and stamp duty land tax purposes. For stamp duty purposes, cryptoassets do not constitute money, stock or marketable securities, but could constitute chargeable consideration in the form of debt.