Cryptocurrency tax: latest news

Cryptocurrency tax latest

10th May 2021

Crypto assets are very much in the line of sight of HMRC as it continues to tighten its grip on tax liabilities that are owed due to the illegal trade in cryptocurrencies, which are subject to capital gains tax in the UK. The involvement of organised crime and the evasion of income tax is a real worry for the UK’s tax, payments and customs authority. It also sends a stark warning to organisations and indeed recruitment agencies that they must be aware of the corporation tax implications should they deal in such currencies.

Explaining how cryptocurrencies such as Bitcoin, Ethereum, the Chinese Fei ch’ien and Black Market Peso, favoured by Colombian and Mexican cartels, are used, David Jones, a director at UHY Hacker Young told City A.M. that “some assets like Black Market Pesos are almost exclusively used by organised crime but criminal proceeds flow through relatively mainstream assets like Bitcoin at a rate that some find alarming. For example, cybercriminals overseas take virtually all of their ransom payments in Bitcoin to avoid detection”.

A ‘statement of assets’ form requires compilers of tax returns in the UK to include all information and data relating to their dealings and holdings in crypto assets. Should they decide not to and if any Bitcoin wallet is discovered, they can have criminal charges served against them. “This demand for information is an important step in HMRC’s fightback against that,” Jones remarked. Individuals who receive cryptocurrencies as a form of non-cash payment by their employers are also liable to pay income tax and National Insurance contributions, as added to HMRC’s recently published Cryptoassets Manual.

As the UK’s tax authority continues its fight to clamp down on tax evasion and ensure that any income received from digital assets doesn’t escape its clutches, Turkish authorities are now also following suit in a bid to get a grip on its unregulated cryptocurrency market. While such a move had been on the cards for some time, the government has finally taken the decision to act and fight back against crypto tax evasion and ensure that it can collect all due income tax on these transactions.

Turkey’s Central Bank (CBRT) actually banned cryptocurrency use for payments of goods and services – though not for investment purposes – from 16th April although this wasn’t effective until the end of the month. Both the Thodex and Vebitcoin exchanges collapsed as a result. From 1st May cryptocurrency exchanges were added to the list of organisations that are governed by Anti-Money Laundering (AML) and terrorism financing regulations. With cryptocurrencies being defined as an asset, this paves the way for the Turkish government to launch its own digital lira and digital currency by 2023.

Recent cryptocurrency tax updates

For a country like Turkey, which saw its inflation rate climb above 17% in April 2021, its highest in two years, cryptocurrencies such as Bitcoin – powered by Blockchain technology – provide safe shelter for savers against the effects of a rise in prices. Often referred to as ‘digital gold’, Bitcoin has a fixed limit of 21 million coins and so cannot succumb to inflation in the same way as the central bank controlled money supply, which is unlimited.

Turkey has one of the highest exposures to cryptocurrency. With daily market transactions in the region of $1-2 billion, equating to $26 billion during the months of February and March, and a huge 600% rise in the use of Bitcoin over the past 12 months, it is not surprising that cryptocurrency activity has come under the scrutiny of the Turkish authorities. Between 16-20% of Turkish citizens were estimated to have traded in Bitcoin during 2020 according to an article in TRT World.

New Zealand was the first country to approve legislation allowing employers to pay their staff in digital currencies with others such as the UK, the Netherlands and Estonia also now allowing for employees to be compensated in crypto. Blockchain technology is also being used for a number of other purposes, including human capital management and token-based reward systems that can be used for employee learning platforms as well as for real-time skills validation in the hiring process and compensation benchmarking.

Cryptocurrency tax compliance is a must

These moves by HMRC and the Turkish tax authorities are yet further indications that governments are no longer prepared to tolerate any wrongdoing when it comes to digital cryptocurrency taxation. For recruiters, any tax liability would need to be recorded under normal corporation tax rules.

If you require specialist guidance on global tax compliance, please get in touch with our 6CATS International contractor management and compliance specialists.

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