Now isn’t this fun

Bitcoin exchanges have been dragged into the Treasury’s tech tax after HMRC said they would not qualify for an exemption granted to financial services companies.

The tax office has informed online cryptocurrency exchanges that they are subject to the levy, which is designed to ensure tech firms such as Google, Facebook and Amazon pay more to the Exchequer.

HMRC said crypto assets “are not financial instruments” and do not qualify as commodities or money, meaning online exchanges that sell cryptocurrencies such as Bitcoin and ethereum are not able to claim an exemption for financial marketplaces.

Crypto’s not money nor a commodity. Doesn’t that rather drive a coach and horses through the demands for know your customer rules and all that?

Or have we reached the sort of dystopia where the bureaucrats are allowed to use different definitions when they feel like it?

12 thoughts on “Now isn’t this fun”

  1. @bis

    Why wouldn’t taxation apply to a transaction using crypto just because it’s not classed as a currency? Barters and asset swaps can still get taxed based on market value or the price that would have been paid in cash only. Some examples where this hppens, not crypto specific, but just to make the point – nb the house swap rules changed a few years ago so both parties pay full whack rather than only the difference getting taxed.

    https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm04020a

    https://www.gov.uk/guidance/vat-part-exchanges-barters-and-set-offs

  2. Only if you’re stupid enough to tell the tax authorities about the transactions in the first place. It is rather the point of crypto, isn’t it? To move commerce away from the interference of government via government money. What they don’t know, they can’t tax.

  3. It would be far better for crypto if its value was defined by its purchasing power in goods & services rather than its exchange value with government currencies. Then it would become an actual, usable currency rather than an investment</strike gamble on exchange rates

  4. It would be far better for crypto if its value was defined by its purchasing power in goods & services rather than its exchange value with government currencies. Then it would become an actual, usable currency rather than an investment gamble on exchange rates.

    That’s better!

  5. If it isn’t money or a commodity… What is it then, according to the Grand Poobah’s of Ex-Cathedra Wisdom?

    It sure as hell is treated by man + dog as both.
    Then again.. Crypto is designed to be like gold-digging.. And the only ones truly benefitting off a gold rush is the people selling shovels.. Meh..

  6. @Grikath

    A currency isn’t the only type of asset. Don’t think anyone denies crypto is an asset of some kind, the spectrum from “investment” to “gamble” always being a subjective one. Certainly gets taxed like an asset does – in the UK pretty much gets taxed like property. Doesn’t need to be classed as “currency” or any kind of regulated investment product to do that.

    https://koinly.io/guides/hmrc-cryptocurrency-tax-guide/
    https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual

    Commoditization is also a matter of degree, since some products can be standardized only imperfectly. In the sense that one unit of a cryptocurrency is interchangeable with another, then you might say it’s fungible and therefore a commodity.

    @bis
    “Only if you’re stupid enough to tell the tax authorities about the transactions in the first place.”

    Well fine, but you’re competing with cash for black market transactions at this point. Your point that “it’s not a currency so can’t be taxed” isn’t rescued by this. And a lot of the more expensive transactions in life are for things that need recording on an official registry – vehicles, land – so a bit trickier or riskier to try to hide the transaction.

  7. Does Know Your Customer stuff only apply to financial services, or can it apply to other businesses? Casinos or betting sites, for example?

    And what do the exchanges typically argue that they are? Do they comply with other regulation applicable to financial services or do they also like to pick and choose the most advantageous path?

    If they have to tick all the FS boxes that would be applicable to their activities if those activities are deemed to be financial services.. then they should be entitled to the tax rules applicable. I am guessing, but I would wager they, too, dance with the uncertainty that comes with an emergent technology. If so.. what’s good for the goose…

    I’ve been there with the taxman. If there is doubt then you’ve got to be pretty straight with your positions (even in the face of HMRC’s scattergun). It’s not really fair, but it’s certainly not new.

  8. “Or have we reached the sort of dystopia where the bureaucrats are allowed to use different definitions when they feel like it? ” Yes. See Financial Catastrophe Authority ‘rule’ book through which a coach and horses can driven on any bureaucrats whim and fancy.

  9. We reached that dystopia a long time ago.
    HMRC can, almost on a whim, declare a contractor working as an employee of his own company to be an employee of the company’s client – thus meaning various extra taxes have to be paid.
    At the same time, neither the contractor nor his company get out of certain other taxes that wouldn’t be due if the contractor actually was an employee of the client. Nor does the contractor gain any rights as an employee of the client as other departments don’t see the contractor as such.
    The phrase “have your cake and eat it” comes to mind. It’s also interesting to note the number of cases HMRC lose when their arbitrary decisions are challenged.

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