07 February 2022 Issue 1 Zoe Wyatt

The other side of the coin

Zoe Wyatt summarises the key insights in HMRC’s new guidance on crypto‑assets, which outlines tax considerations for cryptocurrency holders in the UK

According to recent figures published by the Financial Conduct Authority (FCA), the number of UK adults who hold crypto‑assets has reached 2.3 million – a rise of 400,000 (21 per cent) over the previous year. In this context, the provision of updated tax guidance on crypto‑assets is important, particularly when they are not yet subject to any bespoke regulation by the FCA or other UK regulators. In March 2021, Her Majesty’s Revenue and Customs (HMRC) published its new Cryptoassets Manual, which outlines tax considerations for individuals and businesses on crypto‑assets that they hold. This supersedes its two previous policy papers, published in December 2018 and November 2019, respectively. The frequency of these updates reflects the dynamic and fast‑evolving nature of the crypto markets.

The new manual

The latest guidance was published to assist taxpayers and their professional advisors in understanding HMRC’s interpretation of the law as it relates to crypto‑assets and the various applicable taxes. Fundamentally, the new manual does not depart from HMRC’s pre‑existing position in the previous policy papers. Instead, its aim is to provide greater clarity by expanding on previous advice and to help individuals and businesses understand the tax consequences of different types of transactions in crypto‑assets.

Because of their unique nature, it is essential that advisors and their clients understand the tax implications that can arise from transactions involving crypto‑assets. In simple terms, there might be income tax considerations when holding crypto‑assets, although more often capital gains tax or corporation tax on chargeable gains considerations will apply for any net gains/profits made on disposal. However, the taxation of crypto‑assets can be much more complex, since the terminology and types of coin, token and transaction can vary enormously.

In its responsive tax treatment of crypto‑assets, HMRC is running hard to keep up with the pace of change, both in the assets themselves and in the markets in which they are traded.

One area specifically addressed by the new guidance on taxation is staking, which involves committing crypto‑assets to support a blockchain network and to confirm transactions. According to the guidance, whether such activity amounts to a taxable trade (with the tokens as trade receipts) depends on a range of factors such as degree of activity, organisation, risk and commerciality.

Please login to access this content

If you are not a member, find out more about joining STEP or subscribing to STEP articles.