UK Tax Collector Says How Crypto Holders Will Pay Taxes

UK Tax Collector Says How Crypto Holders Will Pay Taxes

“But in this world nothing can be said to be certain, except death and taxes,” said Benjamin Franklin in a letter to Jean-Baptiste Leroy, 1789. Well, The United Kingdom has just made crypto holders to remember that.

No matter how unanimous are crypto investors, they are going to pay taxes. At least, it is what the Her Majesty’s Revenue and Customs (HMRC) agency said this week as they published guidance on how crypto holders will pay taxes.

In a report published Wednesday, the HMRC explained how individuals possessing crypto assets would be taxed, not corporations. The government agency said it would release another guidance on a later date talking about taxation on tokens held by companies.

“Cryptoassets for individuals,” a policy paper published 19 December, covers all kind of tokens in possession of individuals. However, the tax treatment depends on the nature and use of tokens, but not the definition of the token.

“HMRC does not consider cryptoassets to be currency or money,” says the paper. “This reflects the position previously set out by the Cryptoasset Taskforce report (CATF). The CATF have identified three types of cryptoassets: exchange tokens, utility tokens, and security tokens.”

The agency taxes cryptos based on what people do with it. As a sample, “If the holder is conducting a trade then Income Tax will be applied to their trading profits.” Also, depending on frequency, organisation and sophistication.

“A trade in cryptoassets would be similar in nature to a trade in shares, securities and other financial products,” the HMRC said.

Mining will also be taxable regarding the degree of activity, organisation, risk, and commerciality. “The pound sterling value of any cryptoassets awarded for successful mining will be taxable as income with any appropriate expenses reducing the amount chargeable.”

Also, if individuals decide to keep the crypto awarded from Mining, they will have to pay capital gains tax when they later dispose of them. All fees or rewards received in return for mining are taxable.

Blockchain Forks and Losses

The HMRC also covers hard and soft forks. “A soft fork updates the protocol and is intended to be adopted by all. No new tokens, or blockchain, are expected to be created,” the agency highlights.

“A hard fork is different and can result in new tokens coming into existence. Before the fork occurs there is a single blockchain. Usually, at the point of the hard fork a second branch (and therefore a new cryptoasset) is created,” HMRC explains.

As for taxation matters, the value of the new crypto asset created in the fork will be derived from the original crypto that was held by the investor. Costs must be split.

Regarding losses, “if an individual disposes of cryptoassets for less than their allowable costs, they will have a loss. Certain ‘allowable losses’ can be used to reduce the overall gain, but the losses must be reported to HMRC first.”

Losses will be possibly accepted if investors claim that their crypto assets have “negligible value.”

The United Kingdom Cryptocurrency Task Force

United Kingdom special agents are not only James Bond or Austin Powers, but also Tax collector officers.

Previously this year, the United Kingdom Chancellor of the Exchequer Philip Hammond launched the “Crypto Assets task force” in an effort to promote blockchain and crypto market but also to fight against tax evasion from crypto holders.

The Crypto assets task force will include the Bank of England, the UK Treasury, and the Financial Conduct Authority.

Back in the year, Hammond affirmed that the task force “will help the United Kingdom to manage the risks around Cryptoassets, as well as harnessing the potential benefits of the underlying technology.”

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