UK cryptocurrency exchanges will be taxed at 2%, which will likely be passed on to investors, warned CryptoUK.
A recent update to Her Majesty’s Revenue and Customs (HMRC) regulations introduced a digital services tax that will apply to cryptocurrency exchanges operating in the UK.
Encryption switches in the UK will now have to pay a 2% digital services fee, according to a Telegraph report. The UK tax authority HMRC does not recognize digital assets as financial instruments and therefore stock exchanges are not eligible for financial exemptions.
On November 28, the authority included the cryptocurrency exchanges as part of the Treasury’s technology tax. The digital services income tax was introduced in April 2020 and targeted search and social media giants like Facebook and Google.
The latest blow to crypto swaps is the result of HMRC’s cryptographic asset rating, as explained by the regulator:
“There is a wide variety of cryptographic assets, each with different characteristics. He said that since cryptocurrencies do not represent commodities, financial contracts or cash, exchanges of cryptographic assets hardly qualify for exemption in online financial markets.According to CryptoUK, the commercial body representing the digital assets sector in Britain, the tax is unfair and will likely be passed on to investors and traders.
CEO Ian Taylor said that treating cryptocurrencies differently from other financial instruments such as stocks or commodities is detrimental to the cryptocurrency industry.
He added that this was yet another blow to the industry after the arduous licensing system introduced by the Financial Conduct Authority (FCA) for exchanges. As of January, all UK based crypto companies are required to comply with AML (anti-money laundering) regulations and register with the FCA.
The regulator imposed a ban on cryptographic derivatives in January, and in June, the FCA warned consumers about 111 cryptographic companies that had not yet registered.
In April, Cointelegraph reported that the HMRC was intensifying its efforts to detect tax evaders and introduced explicit requirements on the details of digital holdings on self-assessment forms.
UK tax authorities required several exchanges of cryptographic assets to report details of transactions and customer holdings in August 2019.