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Cryptoassets for businesses

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HMRC has published further information for businesses and companies about the tax treatment of cryptoasset transactions, such as Bitcoin. HMRC published guidance for individuals in December 2018.

Depending on the type of transaction, businesses could face liability for CGT, CT, IT, NICs, stamp duty, SDRT or VAT. Activities might include:

  • buying and selling exchange tokens;
  • exchanging tokens for other assets (including other types of cryptoassets);
  • ‘mining’; and
  • providing goods or services in return for exchange tokens.

Much will depend on the usual badges of trade, including the degree and frequency of activity, level of organisation, and intention (including risk and commerciality).

HMRC does not regard exchange tokens as capable of creating loan relationships, as it does not consider exchange tokens to be money. However, exchange tokens may be intangible fixed assets for corporation tax purposes where companies account for them as such.

Exchange tokens can be chargeable assets for CGT and corporation tax purposes if they are both capable of being owned and have a value that can be realised. The costs of mining activities (such as equipment and electricity) will not be allowable when calculating gains or losses for corporation tax and CGT, being not ‘wholly and exclusively’ to acquire the exchange tokens.

For transfers of exchange tokens to fall within the scope of stamp duty or SDRT, they would need to meet the definition of ‘stock or marketable securities’ or ‘chargeable securities’ respectively, which HMRC will consider on a case-by-case basis.

Gregory Price, partner at Macfarlanes, noted, in a blog published on his firm’s website, that: ‘HMRC has now firmed up [its view] that transactions involving cryptocurrency would not be taxed in the same way as transactions in sterling or foreign currency. For example, a loan of Bitcoin to another company would not … fall within the tax rules for corporate finance transactions. 

‘Instead, businesses will need to apply general principles to establish whether they have made a gain or a loss from their cryptoassets, and the basis on which they report crypto-related profits.

‘Whilst it is helpful to have practical guidance from HMRC on these issues, the speed at which this area is developing, including new products and types of transactions, means businesses investing or trading in cryptoassets are likely to continue to encounter situations for which there is no settled tax treatment,’ Price added.

For the guidance, see The guidance does not cover transactions involving security tokens and utility tokens, which HMRC will address separately.

Issue: 1464
Categories: News