- HMRC has levied a 2% digital tax on cryptocurrency exchanges
- The move is yet another example of authorities pushing crypto out of the country
- HMRC and the FCA have made engaging in crypto very hard for people and businesses
HMRC, the UK’s tax authority, has helped Britain take yet another step towards pushing cryptocurrency business out of the country. The authority, which didn’t produce clear guidance on cryptocurrency taxation until late 2019, has announced that cryptocurrency exchanges operating out of the UK will be hit with a 2% digital services tax brought in last year to target social media giants. Exchanges operating in the UK already face difficult reporting measures due to HMRC and Financial Conduct Authority (FCA) policy changes in recent years, and this extra tax will do more to push cryptocurrency innovation out of the country.
HMRC Slow to Offer Cohesive Advice
HMRC hasn’t been as negative as other agencies such as the Financial Conduct Authority when it comes to clamping down on crypto activity in the UK, but they have hardly embraced the crypto sector. Crypto traders have for years reported being told different things by different tax officials when it comes to reporting cryptocurrency gains, meaning that even those trying to do the right thing sometimes get it wrong, with HMRC now retrospectively scouring foreign exchanges to identify potential tax cheats.
HMRC only offered comprehensive guidance for individuals and businesses in March 2021, bringing in a pooling system which is extremely time consuming, and difficult, for both individuals and accountants to calculate.
Digital Tax Aimed at Social Media Giants
The 2% digital services tax has been levied at what few UK-based cryptocurrency exchanges remain because HMRC does not recognize digital assets as financial instruments and therefore cryptocurrency exchanges are not eligible for financial exemptions. Why it has taken so long for HMRC to realize this isn’t clear, but it comes after efforts from the FCA to all but stop British citizens from interacting with the crypto space by warning them away from cryptocurrency exchanges and getting operators to go through an onerous reporting process.
It is becoming harder and harder for British cryptocurrency investors to engage in the space to a meaningful extent in line with HMRC and FCA recommendations, which are a clear indicator that the country is happy to turn its back on the financial and digital revolution taking place around the world.