Has the time come for cryptocurrency?
What is a cryptocurrency?
Cryptocurrencies are relatively new and technological innovations have led to them being created in a wide range of forms with varying uses. They are cryptographically-secured digital representations of value or contractual rights that can be transferred, stored or traded electronically.
Entering the mainstream
Although cryptocurrencies have not yet become part of everyday spending for the average UK adult, their use is slowly but surely becoming commonplace. Bitcoin is the best known of the cryptocurrencies, and 2017’s spectacular rise in value aroused much interest. That rally highlighted the potential of Bitcoin as an investment; however, it is increasingly available for everyday usage. More businesses are now accepting Bitcoin as payment for goods and services.
Losses and scams
The value of cryptocurrencies can be volatile, and holdings have been subject to cyber loss or theft. Bitcoin value rocketed to over £13,800 during 2017: however, at the time of writing it is trading at around £6,600. Meanwhile, Action Fraud figures show cryptocurrency frauds totalled £2 million during one two-month period.
Tax treatment of cryptocurrencies
HMRC recently issued guidance on the tax treatment of cryptocurrencies for businesses.
The UK tax authority stressed that it does not consider cryptocurrencies to be currency (e.g. pound sterling), stock or marketable securities. This means that any corporation tax and capital gains tax (CGT) legislation which relates solely to currency does not apply to cryptoassets.
However, HMRC makes clear that if a business is carrying out activities that involve exchange tokens, they are liable to pay taxes, including CGT, corporation tax or VAT on them. This includes activities such as buying and selling exchange tokens; exchanging tokens; ‘mining’ assets; and providing goods or services in return for exchange tokens.
It also requires businesses to keep records of cryptocurrency transactions in pounds sterling, and to keep records of the valuation methodology for these transactions. HMRC previously published cryptocurrency taxation guidance for individuals, clarifying several taxation issues.
Individuals will be liable to pay income tax and national insurance contributions (NICs) on cryptocurrencies that they receive from their employer as a form of non-cash payment, or through mining, transaction confirmation or airdrops.