UK Tax Authority Publishes New Guidance for Crypto Owners

An update on crypto taxation has been published by the UK tax authority on interest earned through lending crypto and staking.

March 31, 2021 | AtoZ Markets – The UK Internal Revenue Service (HMRC) has published an updated guide to cryptocurrency transactions.

The new document brings together guidelines for businesses and individuals. For the first time, it concerns loans secured by cryptocurrencies and staking.

HMRC Guidance on Crypto Tax

According to the ministry’s explanation, loans secured by cryptocurrencies are a type of credit relationship and are regulated according to standard rules.

However, when borrowing cryptocurrency, traditional credit relations do not arise between the lender and the borrower, since we are not talking about a money loan and there is no fact of a monetary transaction. This means that cryptocurrencies are not considered fiat currencies and therefore cannot apply standard regulation.

Staking for business in case of onward sale of coins is subject to capital gains tax or corporate income tax. If the goals are not related to trade, such coins are considered as other income.

Individuals, when selling cryptoassets, are also required to pay capital gains tax.

In general, HMRC adheres to the mechanism described back in 2019. The following activities are taxed on it:

  • buying/selling cryptocurrencies;
  • exchange of cryptocurrencies for other assets, including cryptocurrencies;
  • mining;
  • sale of goods and services for cryptocurrencies.

The amount of tax depends on the income/expenses and the net profit of the company. HMRC will determine the tax format for each tax return on a separate basis. Depending on the circumstances, the business will pay one or more taxes, including:

  • income tax;
  • capital gains tax;
  • corporate tax;
  • stamp duty;
  • VAT;
  • insurance fee.

Most of the mining operations are classified as taxable events. If mined coins are not traded, they are classified as other income.

Individuals will be required to pay income tax and insurance premiums from cryptocurrencies, which they receive as wages, through mining, transaction validation and airdrops. Contributions to pension funds in digital assets are prohibited.

HMRC also indicated that the ownership of digital assets and their use is not illegal in the UK. The agency does not consider cryptocurrencies as a means of tax evasion or other illegal activities.

The HMRC will continue to update the document multiple times over the next year.

Recall that the department published the previous guide to cryptocurrency transactions for business in November 2019. In it, HMRC classified exchange-traded cryptocurrencies as commodities.

At the end of 2020, the UK introduced a temporary registration regime for cryptocurrency companies. It will run until July 9, 2021.

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