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Peer2Peer Finance News | October 17, 2018

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HMRC updates crypto investors on tax confusion

HMRC updates crypto investors on tax confusion
Kathryn Gaw

CRYPTOCURRENCY investors have been warned by experts that they may face an unexpected tax bill if they sell out of the market at a profit.

However, a HMRC representative has told Peer2Peer Finance News that the tax office will deal with cryptocurrency related tax bills “on a case-by-case basis”.

The 2017-18 tax year saw huge volatility across the cryptocurrency sector, with Bitcoin reaching a high of £13,840 in mid-December before ending the tax year at approximately £4,750 per coin. This has led to confusion among retail investors regarding their tax liability, particularly if they sold out of the market at a high, then reinvested the profits only to see any gains wiped out.

“The treatment of income received from, and charges made in connection with, activities involving cryptocurrencies will be subject to corporation tax, income tax or capital gains tax depending on the activities and the parties involved,” said a HMRC spokesperson.

“Whether any profit or gain is chargeable or any loss is allowable will be looked at on a case-by-case basis taking into account the specific facts. Each case will be considered on the basis of its own individual facts and circumstances.

“Where an asset (including Bitcoin) is held as an investment – as opposed to being working capital in a trading activity – the presumption is that any profit or gain on its disposal will be charged to capital gains tax.”

Read more: Cryptocurrency lobby group calls for regulation based on P2P model

The tax office clarified that a calculation is made for each disposal to establish where the disposal gave rise to a gain or a loss. At the end of the tax year, the taxpayer must add together all of their chargeable gains and then subtract any in-year allowable losses. Any gains will be charged at the standard capital gains rate of either 10 per cent or 20 per cent, while any losses can be carried forward to the next tax year to offset any future gains.

“The different implications would be on you receiving payment in cryptocurrency as part of a trade,” said Emily Coltman, chief accountant at FreeAgent. “For example, are you selling cryptocurrencies online or being paid in cryptocurrency? Or are you buying and selling cryptocurrencies like you buy and sell shares? These possibly involve different tax implications but if you’re at all unsure then do speak with a tax advisor for further guidance.”

Read more: Assetz Capital investors predict cryptocurrency collapse

Cryptocurrencies have taken the retail investment world by storm and are now expanding into the world of peer-to-peer lending, with a number of platforms offering digital currencies to finance or secure loans. The most high-profile example is EQUI, launched by entrepreneur Baroness Michelle Mone and her venture capitalist partner Doug Barrowman, which enables retail investors to acquire stakes in or lend to early-stage businesses using EQUItokens.

Other crypto-backed P2P platforms include ETHLend, which issues loans in Ethereum, and Lendingblock, which lets individuals lend in a range of digital currencies such as Bitcoin, Ethereum and Ripple.

Revolut’s head of mobile Ed Cooper told Peer2Peer Finance News that the digital bank has seen a “huge increase” in the number of retail investors investing in cryptocurrencies.

However, he added: “Investors should be aware that cryptocurrencies involve a high degree of risk. People should carefully consider whether trading or holding cryptocurrency is suitable for them in light of their financial condition. We recommend that people seek their own financial advice from an appropriately authorised and independent financial adviser.”

Read more: Coin-backed P2P platforms shrug off crypto volatility

This article featured in the May edition of Peer2Peer Finance News, now available to read online