Her Majesty’s Revenue and Customs (HMRC), the United Kingdom’s tax authority has issued the updated taxation guidance for businesses to clarify various aspects. The latest guidance details about exchange token such as Bitcoin and also said that the guidance on security tokens and utility tokens will be addressed shortly.
According to the authority, exchange token are cryptocurrencies such as Bitcoin – however, “it doesn’t apply to the issue of tokens under initial coin offerings or other similar events”. The updated guidance was shared on Friday, November 01, 2019 elaborating authority’s decision on capital gains tax, corporate tax, national insurance contributions, income tax, and others.
Notably, the authority states that cryptocurrencies such as Bitcoin don’t fall under the category of currency as well as stock or marketable securities – this means that Bitcoin and other cryptocurrencies are largely exempted from stamp taxes. Nevertheless, the guidance mentioned that the tokens involved in debt transactions are still subject to stamp taxes.
For Stamp Duty, chargeable consideration is ‘money’, ‘stock or marketable securities’ or ‘debt’. For Stamp Duty Reserve Tax it is defined as ‘money or money’s worth’.
More so, the authority seeks businesses to maintain the records of crypto-transactions in pounds sterling. As cryptocurrencies are quite volatile, it also requires businesses to keep records of the valuation methodology for such transactions – applicable for individuals and companies.
If the transaction does not have a pound sterling value (for example, if bitcoin is exchanged for ether), an appropriate exchange rate must be established to convert the transaction to pounds sterling.
As the demand for cryptocurrency on the rising mark, HMRC further expects companies to keep a record of the amount spent on each type of exchange token.
HMRC does not consider exchange tokens to be money. Besides, there is typically no counter-party standing behind the token and, as such, it does not seem that the token constitutes a debt. This means that exchange tokens do not create a loan relationship, HMRC mentioned. In particular, no money debt will typically exist and it is HMRC’s view that exchange tokens do not constitute currency.
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