News & Insight

Crypto & blockchain November 14, 2019
New HMRC guidance on the taxation of cryptoassets

New HMRC guidance on the taxation of cryptoassets

On 1 November 2019, HMRC published a policy paper with new guidance for companies and other businesses on the taxation of transactions involving cryptoassets (available here). This complements HMRC’s existing guidance on the taxation of cryptoassets held by individuals (first published in December 2018, available here).

Since there is no separate set of rules governing the taxation of what is loosely referred to as ‘cryptoassets’, HMRC has been seeking to clarify how existing rules and principles of taxation should apply to crypto – no mean feat considering the rapid pace of development of the technologies underpinning crypto and the emergence of new types of cryptoassets on a regular basis.

The new HMRC guidance does not cover all types of cryptoassets, but deals specifically with the tax treatment of “exchange tokens” (cryptoassets which are intended to be used as a method of payment and encompass cryptocurrencies, such as Bitcoin or Ethereum).  The tax treatment of other types, such as “utility tokens” (which may confer access to particular goods or services through a platform) or “security tokens” (which may represent certain interests in a business, such as a profit share), will be addressed separately in future guidance.

Overall, the new HMRC guidance should be welcomed for its relative clarity and practical approach.  While it is not complete and will continue to evolve as the sector develops, it should provide some comfort to crypto businesses seeking to get their taxes right.  However, some of the areas referred to in the guidance (such as VAT and venture capital schemes – see below) still require a lot of further consideration.

Which taxes apply?

HMRC’s approach to taxing exchange tokens is to apply general principles. Hence, if a company or other business carries out activities involving exchanges tokens, it will be liable to pay tax on them, depending on the type of activities (including whether they amount to a trade), how the business is structured and who else is involved.  Relevant taxes may include capital gains tax, corporation tax, income tax, National Insurance contributions (NICs), stamp taxes and VAT.

Sterling values to be used for completing returns

For the purpose of completing tax returns, the calculation of taxable profits or losses must be in sterling.  Transactions involving exchange tokens without a sterling value (such as trading bitcoin on an exchange that does not use sterling) must be converted using an appropriate exchange rate at the time of the transaction.  Business are required to use a consistent valuation methodology and to keep records.

Are exchange tokens being used in the course of a trade?

A key factor in determining the tax treatment of a transaction is whether a trade is being carried on. Where business activities amount to a trade, the receipts and expenses arising from such activities will form part of the calculation of the trading profits (which must be calculated in accordance with generally accepted accounting practice (GAAP), subject to any adjustment required or authorised by law).

In determining whether there is a trade, the normal tests apply, looking at factors such as:

  • degree and frequency of the activity;
  • level of organisation; and
  • intention (including risk and commerciality).

For example, a company may trade in exchange tokens, or it may use exchange tokens in the course of a trade, e.g. by accepting exchange tokens as payment from customers or using them to make payments to suppliers.

Where exchange tokens are held as investments, any gain arising on their disposal will be a chargeable gain, unless another set of rules within the corporation tax regime (such as the non-trading loan relationship rules or intangible fixed asset rules) take precedence.  This will depend on the precise circumstances of the relevant activity.

Where does mining fit in?

Whether mining activities amount to a trade will again depend on the circumstances.  The guidance gives the example of using a home computers to mine tokens while it has spare capacity, which should not normally amount to a trade.  On the other hand, purchasing a bank of dedicated computers to mine tokens for an expected net profit would probably constitute trading activity.

If the mining activity amounts to a trade, the cryptoassets generated from this will be trade receipts and factored into trade profits.  If the activity does not amount to a trade, the value of any cryptoassets received from it will generally be taxable as miscellaneous income.

If the miner keeps the awarded cryptoassets, a later disposal of such assets may give rise to a chargeable gain (which may be subject to capital gains tax or corporation tax).

See our piece here from earlier this year explaining how mining actually works.


The VAT treatments outlined in the guidance are currently marked as provisional, pending further developments (such as in respect of regulatory and EU VAT positions).

Scenarios discussed in the guidance include the following:

  • Supply of goods or services in return for cryptoasset exchange tokens: VAT is due in the normal way in respect of such supply. The value of the supply on which VAT is due will be the pound sterling value of the exchange tokens at the time the relevant transaction takes place. The supply of the exchange tokens themselves will not separately give rise to VAT.
  • Receipt of exchange tokens in return for mining: this should generally be outside the scope of VAT.
  • Charges rendered for arranging transactions in exchange tokens (over and above the value of the exchange tokens): these may fall within the exemption for intermediary services relating to financial transactions.
  • Bitcoin exchanges: financial services supplied by bitcoin exchanges (such as exchanging bitcoin for legal tender and vice versa) are normally exempt from VAT.

Stamp taxes

While transactions need to be considered on a case-by-case basis, transfers of exchange tokens should not normally give rise to stamp duty or SDRT (as exchange tokens are considered unlikely to meet the definition of ‘stock or marketable securities’).

‘Paying’ employees in cryptoassets

If an employer provides an employee with earnings in the form of exchange tokens, income tax and NICs will be due on the value of such exchange tokens.  HMRC considers that exchange tokens will generally be readily convertible assets, in which case the employer will need to operate PAYE and account to HMRC for income tax and NICs in accordance with the ‘real time information’ (RTI) provisions.

Venture capital schemes

The guidance notes that early stage businesses seeking venture capital advance assurance are increasingly using cryptoassets. A core condition of venture capital schemes is that a company must carry on a “qualifying trade” that (a) is conducted on a commercial basis with a view to the realisation of profits, and (b) does not consist (wholly or as to a substantial part) in the carrying on of “excluded activities”.

The new guidance does not provide much help to crypto businesses seeking to establish whether their activities meet the qualifying trade conditions.  It confirms that none of the following activities (carried out in relation to a core business activity that is a qualifying trade) will stop a company from meeting the qualifying conditions:

  • providing goods or services to customers that are operating in the exchange tokens sector (e.g. manufacturing and selling computer hardware that is optimised for exchange token mining);
  • accepting exchange tokens as payment for goods or services; and
  • using distributed ledger technology as a means of recording or publishing information.

On the other hand, HMRC declines to give a view on the following types of activity, describing their treatment as “uncertain”:

  • dealing in exchange tokens on one’s own account;
  • exchanging or broking exchange token transactions; and
  • mining exchange tokens.

Position as regards qualification unclear…

Thus, the guidance provides no comfort where activities involving cryptoassets constitute the core of a company’s business, and also warns that “HMRC may decline to give an opinion in response to an advance assurance request  because the factual uncertainty involved is too great”.

This may leave crypto businesses in a position where they are unable to establish with reasonable certainty whether or not they qualify for venture capital reliefs until after a funding round (when an application is either accepted or rejected).  Since few crypto businesses will be prepared to take that risk, it is hoped that HMRC will eventually expand its guidance on venture capital schemes to clarify the position for such businesses at least to an extent.

This piece was researched and prepared by Annette Beresford with input from our wider Blockchain & crypto team.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice.  None of the above should be relied upon.  Always seek your own independent professional advice.

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