CryptoCurrency Taxation: HMRC close loophole?

18th January 2019

HMRC are not known for being ahead of the curve, so trying to find official guidance on how exchange gains from selling bitcoin, and other crypto currencies, is expected to be self-assessed and taxed, was always going to be ‘problematic’. At the time of first researching this, the latest HMRC guidance was published in 3 March 2014. This suggested 3 possible tax treatments:

 

  1. Income tax – for individuals who buy and sell cryptocurrency as a business (with a high degree of frequency and organisation).
  2. Capital gains tax – for individuals for hold crypto currency as an investment.
  3. Non-taxable – for highly speculative transactions (akin to gambling).

 

HMRC then updated this guidance on 19 December 2018. Although the general tax principles remain the same, there is one noticeable change: HMRC now explicitly state that “HMRC does not consider the buying and selling of cryptoassets to be the same as gambling”, so option 3 above is ostensibly now removed.

 

For most instances, this will not be a problem, as the background circumstances will not support an argument that the underlying motives were akin to gambling. But take the example of a student, who comes across bitcoin in July 2013 as part of his computer sciences degree course, and so purchases £100 worth (then priced at US$68 per unit).  Four and a half years later, after all the hysteria of a typical bubble market, when the unit price peaked at US19,500, he remembers his purchase and decides to cash in (holding now worth around £30k). As this was clearly a one-off small value speculative purchase, why should this individual’s tax liability be different, dependent upon whether he completed his tax return before 19 December or after? What we have here is the holy grail of tax practitioner dislikes: retrospective legislation. Although, of course, this is not legislation, it is merely HMRC guidance, and HMRC have recently been brought to task over their other guidance incorrectly stating that all directors must submit self-assessment tax returns (even if not issued a notice to file by HMRC). So our astute ex-student now has a dilemma; what best to do?

Other items in Blogs
Joe Fretwell
1st July 2022 Is your PAYE code correct?

With the rising cost of living, it has never been more important to ensure you are paying the correct amount of tax through your PAYE tax code. It is important to understand your tax code, any changes to this and why your tax code on your payslip is what it is. There are many reasons…

Ruth Pearson
23rd June 2022 Changes to National Insurance

In April 2022 we saw Employee’s National Insurance Contributions increase by 1.25% from 12% to 13.25%, as part of the Governments Health and Social Care levy. Employer’s National insurance also increased from 13.8% to 15%. From April 2023, the health and social care levy will be paid separately to National Insurance and become a tax…

James Selby
23rd June 2022 Pensions Contributions: Maximise tax relief

We are seeing more and more cases of individuals missing out on claiming higher rate tax relief on their employee pension contributions especially where they are not in self-assessment and required to file tax returns.   Where employers have enrolled their staff to make employees pension contributions via a ‘relief at source’ scheme, the contributions…

Paul Jefferson
14th June 2022 VAT Penalty Changes

A new penalty regime will come into effect for VAT periods starting on or after 1 January 2023. The changes will impact the charges for missing VAT filing and payment deadlines and will be replacing the current surcharge system. These changes place continued importance on being up to date with your VAT returns, aware of…

Liz Simpson
13th June 2022 NIC: All Change!

HMRC Changes to the National Insurance contributions for 2022-2023 tax year, are you confused? Due to the COVID-19 strain on the NHS, the government announced that they would be increasing the National Insurance contributions by 1.25% as a means to increase spending on health and social care. The Health and Social Care Levy was applied…

Jaimie King
10th June 2022 30-Jun-22: Covid Recovery loan deadline approaching

Time is running out for businesses to apply for Recovery Loans, the follow on Covid-support product from the CBILS.   In order to qualify for the Recovery Loan Scheme (RLS), your business has to have been affected by Covid-19 and you have to apply and have received the funds by 30th June 2022. The RLS…