HMRC updates guidance on tax treatment of cryptoassets

HMRC has released the latest cryptocurrency guidance on the tax treatment of crypto assets. The guidance has been issued as part of an updated manual, which depicts the tax treatment of cryptoassets.

Part of HMRC’s manual features guidance relating to income from staking in proof-of-stake networks. This is the first time that HMRC has released guidance specifically describing how staking is treated for tax purposes.

Staking is a way in which crypto investors can earn rewards when they use a cryptocurrency wallet to lock or hold their funds, for a particular period of time, in order to maintain a PoS blockchain network’s operations. A number of exchanges also offer staking rewards such as Binance. In these cases your coins are held on the exchange, not in a wallet.

Before the guidance was published, many previously assumed that staking came under the umbrella of mining. Whilst HMRC’s guidance on staking is very similar to that on mining, the introduction of separate guidance can lead to divergence in the future.

Under the new guidance, the taxation of business’ staking activity will be determined on whether the activity ‘amounts to a taxable trade’. A taxable trade is determined by a range of factors including; the degree of activity, risk involved, commerciality of the activity and nature of the organisation.

According to HMRC, if staking activity does not amount to trade, the crypto assets awarded (in pound sterling) will be taxable as miscellaneous income, with any necessary expenses. This would further reduce the amount the crypto owner would pay.

If the activity does amount to trade, then the value would be subject to UK relevant tax laws.

HMRC further stated that only in exceptional circumstances would it expect “individuals to buy and sell exchange tokens with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself.”

Where the purchase and sale of cryptoassets does not amount to a trade, for individuals or businesses, profits would be subject to capital gains tax or corporation tax.

Whether you are an individual or a business, we can ensure you are complying with tax regulations surrounding cryptoassets.

At STS (Europe) we can offer advice to ensure tax compliance when trading with crypto assets. We can also assist with the completion of self-assessment tax returns and ensure all profits are taxed in the correct manor.

If you are trading with cryptoassets and would like to know how we can help ensure you are tax compliant, get in touch with us via our contact page or call us on 01704 891676.

For more information, visit HMRC’s cryptoassets manual.