The United Kingdom has changed its cryptocurrency taxation laws dramatically. The changes come just a few months after the first demand for company trading information was filed by Her Majesty’s Revenues and Customs agency.
However, in this case, the changes seem to be permanent as the HMRC is making significant changes in the understanding of trading cryptocurrencies as well as mining and selling them.
Serious changes have been made on VAT payments, mining tax, exchange token tax and various other fields of the industry. Let’s find out what exactly this could do to the UK crypto industry in the future.
Types of taxes and their classification
There are numerous ways that the HMRC is going to tax players in the crypto industry. But before we move to that part, we need to mention how the UK government has started to refer to cryptocurrencies in the first place.
In the past, cryptos were mostly referred to as hobbyist assets, meaning that in the eyes of the law, they did not posess any tradable and residual value. This is a bit of an arbitrary explanation as information on their trading activities was always saught after.
Now though, in the new ruling, the HMRC has started referring to cryptocurrencies as commodities, still denying to recognize it as anything resembling money.
The types of taxes that will be introduced for crypto companies are listed down below:
- Capital gain tax
- Value Added Tax (VAT)
- Corporate tax
- Income tax
- Stamp taxes
There are other variations as well, but these five are the primary classifications that the HMRC will start distributing in the industry.
Similar treatment for mining operations
Mining operations aren’t necessarily considered as trading, but the product they produce does indeed fall under such classifications.
What this means is that any cryptocurrency produced by miners, which is then traded on a crypto exchange will be classified as capital gain, therefore subject to capital gain tax. However, if it is not traded on a crypto exchange, it will be considered as miscellaneous income, thus still subject to income tax.
The way HMRC justifies this amendment to the rules is to better ensure the profitability and stability of the crypto industry. They believe that having the companies pay taxes, would help government agencies better ensure the safety of future users of said platforms.
Why the tax is actually being installed
The main reason that experts have managed to already come up with explanations are due to how easy it actually is.
Brexit talks have failed once again, thus forcing the European Union to postpone the UK’s withdrawal. This has given the EU a lot more leverage in terms of demands and further pressuring the UK to make a hasty decision.
The postponing of Brexit has hit the UK’s economy tremendously. The GBP is starting to stagger again, almost becomming equivalent to Euros, while local companies are given a bit more time to finally decide whether or not they will be leaving the market.
In an attempt to somehow cover the damages, HMRC sought to the crypto industry which is currently booming as an alternative means of income to cover the losses of their most prominent sectors.
Similar cases with other financial industries
Similar cases can be found with other financial industries, especially dealing in the exchange of currencies. The United Kingdom, more specifically London is one of the financial centers of the world, meaning that a lot of market speculation takes place exactly there.
And when I say market speculation, I don’t mean the dozen Apple stocks that a regular user has. I mean the multi-billion dollar companies that trade millions of dollars every single hour.
In order to somehow tap into this extremely lucrative market, the HMRC requested some added tax to the existing trader benefits. For example, if a trader were to use a specific bonus from a company, it would be classified as miscellaneous income if they decided to withdraw it. Therefore, the trader would have to pay at least some kind of tax on it.
This discouraged several financial companies from holding these types of benefits as people would start to view them as liabilities rather than benefits.
Other industries that got the cold end of the stick were gaming related due to their affiliation with a not-so-moral business model. The government decided to increase taxes on this industry to cover the expenses of other sectors. The gaze was that gaming was a damaging industry and therefore had to be limited as much as possible.
As long as Brexit persists, taxes will keep rising
As long as Brexit leeches on the most profitable industries in the United Kingdom, the government will continue to increase taxes on slightly less important sectors such as cryptocurrencies or financial trading. Despite the fact that these industries are already a major supplier of direct income to the UK government, they’re still being trumped by manufacturers.
The moment we see a Brexit with a deal pass, it’s likely that the grip will loosen and industries will have a much more deregulated market to work with.