Cryptoassets make up a growing portion of the market, and businesses are increasingly looking to take advantage of these digital currencies.
If your business carries out activities involving the exchange of cryptoassets, then you are liable to pay tax on them.
However, understanding how HM Revenue & Customs (HMRC) treats cryptoassets for tax purposes can be tricky.
Here is what you need to know about how HMRC taxes cryptoassets for corporates.
Disposal of cryptoassets
Disposal of cryptoassets includes selling tokens for money and exchanging tokens for a different type of token.
Using cryptoassets to pay for goods or services, or giving away cryptoassets to another person, also counts as a disposal.
Disposal of cryptoassets is usually treated by HMRC as capital disposal gains or losses rather than profits or losses.
This means that, if you hold exchange tokens as an investment in your business, you are liable to pay Corporation Tax (CT) on any gains resulting from disposal.
However, in exceptional circumstances where your business regularly buys or disposes of cryptoassets, HMRC may classify your profits as subject to Income Tax and National Insurance (NI), rather than CGT.
Even if the profit or gain is within your tax-free allowance, you must still report it to HMRC.
Under HMRC rules, transactions concerning currency used as legal tender are exempt from Value Added Tax (VAT).
However, HMRC does not consider cryptoassets to be money or currency.
This means that cryptoassets are liable for VAT.
HMRC also does not consider the trading of cryptoassets as gambling.
Airdrops and mining
If your business receives an allocation of cryptoassets as part of an airdrop (for example, a marketing campaign), any future disposal will be subject to CGT.
In all cases, income from mining cryptoassets is subject to Income Tax.
Where mining activity is deemed to be a trading activity by HMRC, then any income will be regarded as trading income. Otherwise, it will be treated as miscellaneous income.
The latter will not be liable for Class 4 NI contributions and will be classed as unearned income for student loan repayments.
It is important to note that costs for mining activities do not count toward allowable costs in respect of tokens.
Taxes on cryptoassets – do not get caught out
Taxing cryptoassets is a complex process, but while it may be tempting to bury your head in the sand, you mustn’t ignore the issue.
Failure to declare gains or income from cryptoassets could get you in trouble with HMRC, while misunderstanding which kind of tax you are liable for could lead to costly errors.
If your business is involved in cryptoassets, you must seek expert tax advice from a specialist.
Unsure about the taxation of cryptoassets used by your business? Contact our tax team today for tailored advice and guidance.
