By Shelly Melancon (Switzerland)
Her Majesty’s Revenue and Customs (HMRC) regulations have imposed a tax on digital services in the Kingdom. The body classifies cryptocurrency exchanges in the Kingdom as companies providing digital services, and as such, they are expected to pay the tax. News media reports that the regulatory body will take 2% in tax for digital services from cryptocurrency exchanges.
The Reason For The Tax
The UK’s tax body doesn’t classify cryptocurrencies as financial instruments and, as such, are not qualified for tax deductions or exemptions. The body expanded the technological tax policy to cover cryptocurrency exchanges yesterday. The tax policy was announced initially in April of last year. The commission created it at the time with just big technology companies in mind.
The recent expansion of the policy to include cryptocurrency exchanges results from how the regulatory body classifies them. The commission said that there exists a wide variety of cryptocurrencies and their use cases. The body believes that this diversity did not make it possible to classify them as financial instruments and so can’t be exempted like other financial services that run online.
CryptoUK is a trading body that speaks for the cryptocurrency industry in the UK. The body has described the new policy as unjust. They believe that cryptocurrency investors and traders will be made to bear the brunt of the new policy.
The Executive Director of CryptoUK, Ian Taylor, said that cryptocurrencies needed to be treated like other financial instruments by the regulatory body. Ian believes that this is the latest in a series of unfair policies imposed on the industry. He cited the process implemented in January by the FCA for cryptocurrency exchanges to get permits to run in the country. The FCA now requires the digital asset companies to register with it in line with regulations against money laundering.
Also read:Regulatory Efforts In The UK
Early this month, Deputy Governor of the Bank of England Jon Cunliffe warned that cryptocurrencies were becoming an immediate threat to financial market stability. He called for regulations across the board for the emerging market. He believes that the industry is growing exponentially and that the government needs to start paying attention.
This year, there are increased efforts by the Financial Conduct Authority to get involved in the industry, and they haven’t all been received happily by the industry, as Ian Taylor surmised above. The FCA, along with imposing a new process for cryptocurrency exchange registration in January, also banned cryptocurrency derivatives. The body said it was to protect retail investors.
The FCA giving its reasons for the ban disclosed that they felt a lot of retail investors did not fully understand cryptocurrencies enough. Head of policy and regulatory affairs at Chainanalysis Jesse Spiro expressed his belief that, in reality, the opposite was the case. He stated that there is a proliferation of information today. He believes a lot of retail investors are highly knowledgeable.
The FCA has since gone after cryptocurrency firms that have not registered with new regulations, warning investors against them. The tax body, on the other hand, has committed to bringing tax evaders in the industry to book. There have also been cases in the past of government bodies demanding information on users from exchanges. The regulation doesn’t seem to be letting up.
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