CryproUK has warned of a 2% crypto exchange tax that could pass to investors. The warning comes after an adjustment to Her Majesty’s Revenue and Customs (HMRC) that changed the tax levied on cryptocurrency in the U.K.
Because of the updates, the HRMC no longer recognizes cryptocurrency as a financial instrument. For this reason, the digital currency will not be subject to tax exemptions, but they will instead tax it at 2%.
HRMC placed cryptocurrency under the tech tax of the Treasury on November 28. In April 2020, the authority introduced the digital services tax on revenue to target social media sites like Google and Facebook.
The HRMC explained that crypto assets come in different forms, each with its characteristics. Moreover, the digital currency does not represent money, financial contracts, or commodities; thus, crypto-asset exchanges are unlikely to be positively impacted by exemptions given to financial marketplaces online.
CryptoUK says cryptocurrency is a financial instrument
CryptoUK, which represents digital assets in Britain, has called the tax unfair. It points out that it is likely to affect traders and investors. Ian Taylor, the executive director of CryptoUK, has said that it is unjust for the regulator to treat cryptocurrency differently from financial instruments like commodities and stocks. He adds that the move will negatively impact cryptocurrency in the market.
Taylor adds that this is no different than the licensing system the Financial Conduct Authority (FCA) created. The FCA now requires all crypto companies in the U.K to register with them and follow anti-money laundering AML) guidelines in January. In the same month, the FCA issued a warning to consumers on 111 companies that had not registered with the regulator.
HRMC introduced measures to fight tax evasion
The HRMC has come up with measures to prevent tax evasion by crypto holders. In April, it demanded that information on digital asset holdings be on self-assessment forms. The regulator said it had added a section of tax evasion forms that looked into cryptocurrencies like Ether and Bitcoin. It suspected that a large amount of hidden wealth was in cryptocurrency. News outlets reported that British Authorities asked many crypto exchanges to give them transaction and holdings details from customers in August 2019.