HMRC updates its guidance on the taxation of cryptocurrency

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On 1st November 2019, HMRC published guidance on the taxation of cryptoassets for businesses following the publication of guidance for individuals in December 2018. The guidance provides some welcome clarification on the tax treatment of cryptoassets but will need some further refinement in due course because of the evolving nature of the sector.


The guidance on the taxation of cryptoassets focuses on ‘exchange tokens’. HMRC defines ‘exchange tokens’ as tokens intended to be used as an intangible method of payment, these include cryptocurrencies such as bitcoin and Ethereum. The guidance confirms that HMRC regard these as assets and not as money or currency, and they are taxed accordingly.


In the guidance for individuals, HMRC considers that holders of cryptocurrency will generally be carrying out investment activity and therefore will be subject to Capital Gains Tax rather than income tax on disposal. There are exceptions to this, which include where the individual receives the assets as a benefit from employment; profits from ‘mining’ and ‘airdrops’, and where cryptoassets are being bought and sold for trading purposes.

Ultimately whether an individual is trading is a question of fact. The factors to consider when  determining whether an individual is trading include: degree and frequency of activity, level of organisation, risk and commerciality. The guidance says that it would only be in exceptional circumstances that an individual’s buying and selling of cryptoassets would amount to a trade.


The guidance for companies mostly mirrors the guidance for individuals, particularly in terms of the capital/income distinction.

It does comment on the application of the loan relationships regime and says that because cryptoassets are not regarded as money, they do not in themselves create a loan relationship. In addition, it discusses the potential application of the intangibles regime, VAT and stamp taxes; and also the potential implications for venture capital reliefs.

Both guidance notes discuss the position where exchange tokens are given as remuneration to employees. Broadly, the value of the assets will be subject to income tax, and  will be subject to PAYE and NICs if they are readily convertible assets (“RCAs”). Tokens will be RCAs if there are pre-existing trading arrangements for them or where arrangements are likely to come into existence. If the cryptoassets are not RCAs, employees will need to report the receipt of them on their self-assessment tax return and the employer must account for Class 1A NICs.


The revised guidance provides some helpful clarification on the tax implications of holding and disposing of cryptoassets. This is a step in the right direction but more detailed guidance is needed, specifically more guidance on  other types of tokens.  No doubt the views and practice of HMRC will develop over time as the sector itself develops.

For any more information please contact Angus Bauer.

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