Business tax and cryptocurrencies: HMRC’s new guidance

Do you know the regulations around business tax and cryptocurrencies like bitcoin or Litecoin?

Business tax and cryptocurrencies
Bitcoins are regarded as cryptoassets by HMRC

Until now, HMRC’s guidance on the tax consequences of using or trading in cryptoassets, such as digital currencies like Bitcoin, was mainly aimed at individuals. It’s now published new guidance for businesses. So, what’s the story?

In November 2019 HMRC issued new guidance on business tax and cryptocurrencies – or cryptoassets as it prefers.

It prefers this name to cryptocurrencies because, in common with most governments and banks, it doesn’t recognise Bitcoin etc. as currency or money. Instead it views them as types of token: exchange tokens, utility tokens or security tokens. The difference between these three is subtle, but for now HMRC has limited its latest guidance to exchange tokens.

HMRC says that an exchange token is “intended to be used as a method of payment and encompasses cryptocurrencies like bitcoin” for which “there is no person, group or asset underpinning these, instead the value exists based on its use as a means of exchange or investment”.

The tax treatment of crypto exchange tokens depends on how you use them, and whether your business operates through a company or is unincorporated. There are some tax issues specifically for companies.

Where cryptoassets are used a means of payment, the value on the transaction must be recorded in your books in a recognised currency. For example, for transactions in the UK the value must be recorded as sterling. The value is that at the time of the transaction. This is especially important for VAT because invoices must show values in a recognised currency. If your business owns cryptoassets at the end of an accounting period, it must show their monetary value at that date in your accounts balance sheet. For UK tax returns this must be shown in sterling. 

VAT is due in the normal way on goods or services you sell in exchange for cryptoassets. It applies to the value of the transaction (in sterling) at the time of the transaction. If you’re the seller you’ll need to make the valuation to show the VAT amount in sterling on your invoice. You can’t show the velu of the sale or the VAT in, say, Bitcoin. 

Other than where you use cryptoassets as a mean of payment, buying or selling them is a capital transaction. That means gains resulting from buying, selling or changing values of cryptoassets by companies are liable to corporation tax. Owners of unincorporated businesses are liable to capital gains tax on gains made from the sale of cryptoassets.  Gains from changes in value aren’t taxable until there’s an actual sale. 

If you or your company frequently trade in cryptoassets, or if you “mine” them, any gains you make are taxable as profits rather than as capital gains. 

Get in touch with our team for any advice on managing your cryptoassets or cryptomining.

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