Her Majesty’s Revenue and Customs (HMRC) recently updated its framework, adding a 2% digital services tax, which will impact cryptocurrency exchanges operating in the United Kingdom.
The taxation comes, as the HMRC still does not recognize digital assets as financial instruments, which means crypto exchanges are out of financial exemptions.
According to Britain’s tax authority, since November 28 cryptocurrency exchanges are now included under the Treasury’s tech tax. This is a follow-up on the broader digital services tax on revenue, introduced in April 2020. The framework was aimed at regulating social media and search giants such as Facebook and Google.
The 2% digital services tax is a part of HMRC’s classification of crypto assets.
“There are a wide variety of crypto assets, each with different characteristics. It said that because cryptocurrencies do not represent commodities, financial contracts, or money, it is unlikely that crypto-asset exchanges can benefit from the exemption for online financial marketplaces.,” the regulator noted.
However, according to CryptoUK, the new taxation is unfair and is likely to be transferred onto investors and traders. CryptoUK’s Executive Director Ian Taylor commented that it is detrimental to the crypto sector to treat cryptocurrencies differently from other financial instruments such as stocks or commodities.
Furthermore, Taylor emphasized that “that it is another heavy blow to the industry following the arduous licensing system introduced by the Financial Conduct Authority (FCA) for exchanges.” It turns out that since the start of 2022, all crypto asset companies, operating in the United Kingdom, have to comply with AML (anti-money laundering) regulations and register with FCA.
Also, the HMRC banned crypto derivatives in January, while the FCA warned consumers against 111 crypto firms that had yet to register with it in June.
This is HMRC’s latest effort in snaring crypto tax evaders and introducing explicit demands on details of digital asset holdings on self-assessment forms.