HMRC has issued welcome guidance on the tax treatment of cryptocurrencies. The guidance covers digital crypto-assets including “exchange tokens” such as bitcoin.
The guidance has confirmed that the buying and selling of these assets will be treated as investment activity rather than trading, with the result that the transactions will be subject to capital gains tax, rather than income tax.
With regard to income derived, it is also confirmed that to the extent that action is required by the investor in order to receive income, the income will be taxed as miscellaneous in the hands of the investor unless they are in fact trading.
Despite this welcome guidance, there are still questions around the situs of virtual assets (where they are treated as being located for legal purposes), and further guidance is required for companies using virtual assets to make payments either for trading purposes or to compensate those working with or for them.
Although current guidance has acknowledged that in some cases cryptocurrencies can be received as payment for services or employment, careful consideration is required to establish whether the currency paid is a readily convertible asset, in which case PAYE and NIC deductions should apply, or if not, they should be treated as a benefit in kind.
As with any investment activity, the onus of record keeping and reporting is on the taxpayer and therefore the taxpayer must keep records for the tokens received.