Cryptoassets cannot constitute money or currency, HMRC confirms

The market for cryptoassets, and transactions denominated in cryptocurrency, has developed fast (and is constantly evolving). Tax authorities, including HMRC in the UK, are trying to catch up and provide certainty for business over how cryptoassets should be taxed.

In December 2018, I wrote about the taxation of UK individuals holding cryptoassets, and HMRC's position (published at that time) that cryptoassets were not a form of currency.

HMRC has now firmed up that view, publishing guidance for businesses that runs through a number of scenarios in which transactions involving cryptocurrency would not be taxed in the same way as transactions in sterling or foreign currency. For example, a loan of Bitcoin to another company would not (according to HMRC's latest briefing) fall within the tax rules for corporate finance transactions.  

Instead, businesses will need to apply general principles to establish whether they have made a gain or a loss from their cryptoassets, and the basis on which they report crypto-related profits. 

Whilst it is helpful to have practical guidance from HMRC on these issues, the speed at which this area is developing - including new products and types of transactions - means businesses investing or trading in cryptoassets are likely to continue to encounter situations for which there is no settled tax treatment.