United Kingdom’s Tax Agency Revises Cryptocurrency Tax Laws

The HMRC (Her Majesty Revenue and Customs), which is the United Kingdom’s tax, payments, and customs authority, has revised its tax code for cryptocurrency activities.

On the 1st of November, the tax agency of the UK, which is responsible for taxes as well as other financial operations, revised its tax code to define its position on how it will tax businesses and individuals dealing in cryptocurrency.

HMRC Doesn’t Recognize Cryptocurrency as Money
The revised code defined the HMRC’s position on cryptocurrency transactions (that are taxable) how tax returns and accounting practices should be filed and some other matters. It also put the taxation of coins into consideration, saying that codes for security coins will be addressed at a different time.

Normally, entities that trade or mine coins for other assets or receive payment with coins for goods or services rendered, are accountable to pay for one or more of the various kinds of taxes. These taxes consist of income tax, corporation tax, capital gain tax and a host of others.

However, the tax authority has noted that it doesn’t deem the present kinds of cryptocurrencies as money or currency.

 

The HMRC also acknowledged that the cryptocurrency space is fast-paced and as such, it will revise the information of each case individually and assign the appropriate tax code based on what transpires instead of going by theory alone.

The regulatory agency used to classify cryptocurrency trading as gambling. However, the revised tax code notes that the agency doesn’t see cryptocurrencies like that anymore.

HMRC Orders for the Provision of all Transactions History
The HMRC has ordered that cryptocurrency exchanges render all the records of users’ information and the history of all transactions. The agency is aiming to deal with issues of tax evasion on cryptocurrency platforms.

It has been speculated that the HMRC has only ordered for the rendering of records from the last 2 to 3 years with means that pioneering members are exempted from the scrutiny.

IRS Publishes New Cryptocurrency Tax Guidance

The Internal Revenue Service (IRS) has publicized fresh codes for taxpayers who utilize cryptocurrencies. In 2014, the agency disseminated policies that made it unmistakable that for tax objectives, digital currencies would be dealt with as capital assets as far as they are interchangeable for money.

This current Revenue Ruling comprises recommendation that particularly deals with two topics, but before exploring those questions and their answers, some explanations might be beneficial.

Hard Fork
A hard fork in a cryptocurrency may give rise to the development of a fresh cryptocurrency. That means, after a hard fork, two blockchains are created—as well as two cryptocurrencies.

Airdrop
An airdrop is a technique of allocating units of a cryptocurrency to their owners’ distributed ledger addresses. Whenever a hard fork is preceded by an airdrop, part of the fresh currency is allocated to any addresses that contain the source currency from which the hard fork occurred.

Constructive Receipt
This concept implies that the user is taxed on revenue whenever it is addressed. This means that even if the user doesn’t attain this payment, they are still taxed on it.

Airdrop doesn’t precede a hard fork in all cases. This is where the idea of Constructive Receipt enters: whether the user has received an airdrop after a hard fork, that user is presumed to have “constructively accepted” cryptocurrency and this airdrop is documented on the distributed ledger.

The Questions Dealt With
These questions were dealt with in the new Revenue Ruling:

1- When taxpayers attain units of fresh cryptocurrencies after an airdrop that precedes a hard fork, does this mean that the taxpayer now possesses gross income under subsection 61 of the Code?

2- In situations where taxpayers attain no unit of currency after a cryptocurrency hard fork they possess, is the taxpayer said to possess gross income under subsection 61 of the Code?

Based on the revenue verdict, taxpayers don’t get gross income stemming from a hard fork when they don’t receive new cryptocurrency. However, taxpayers are said to have gross income when they attain new cryptocurrencies resulting from an airdrop that preceded a hard fork.