HMRC policy paper on the taxation of transactions involving cryptoassets

A new policy paper explains how HMRC will tax transactions involving cryptoasset exchange tokens that are undertaken by companies and other businesses (including sole traders and partnerships). It does not apply to the issue of tokens under initial coin offerings or other similar events.

Although HMRC recognises other types of cryptoasset, this paper deals specifically with the tax treatment of exchange tokens (for example, bitcoin). The tax treatment of security tokens and utility tokens will be addressed in future guidance.

If a company or business is carrying out activities which involve exchange tokens, they are liable to pay tax on them.

Such activities include:

  • buying and selling exchange tokens
  • exchanging tokens for other assets (including other types of cryptoassets)
  • ‘mining’
  • providing goods or services in return for exchange tokens

The type of tax will depend on who is involved in the business and the activities it carries out (including whether these count as a trade).

It is likely they will be liable to pay one or more of the following:

  • Capital Gains Tax
  • Corporation Tax
  • Income Tax
  • National Insurance contributions
  • Stamp Taxes
  • VAT

The amount of tax a business must pay will depend on its income, expenditure, profits and gains. These must be declared annually to HMRC on either:

  • Self Assessment tax return (for sole traders and partnerships)
  • Company Tax Return (for companies)

HMRC will consider each case on the basis of its own facts and circumstances. It will apply the relevant legislation and case law to determine the correct tax treatment (including where relevant, the contractual terms regulating the exchange tokens).

If a company disposes of exchange tokens to charity, they will not have to pay Corporation Tax on any gain that has accrued. This does not apply if either:

  • they make a ‘tainted donation
  • the company disposes of the tokens to the charity for more than the acquisition cost (so that they realise a gain)