According to a recent revision to Her Majesty’s Revenue and Customs (HMRC) rules, a digital services tax will be applied on cryptocurrency exchanges operating in the United Kingdom.
Cryptocurrency exchanges in the UK will soon be subject to a 2% digital services tax, according to a Telegraph report. Exchanges do not qualify for financial exemptions. Since the HMRC in the United Kingdom does not consider digital assets to be financial instruments.
On November 28, the Treasury’s digital tax included cryptocurrency exchanges. In April 2020, the revenue tax on digital services, which targets social media and search corporations like Facebook and Google, went into effect.
The latest setback for crypto exchanges, according to the regulation, is related to the HMRC’s classification of crypto assets:
“There are a variety of different sorts of crypto assets, each with its unique set of characteristics. Crypto-asset exchanges are unlikely to profit from the exemption for online financial markets. Since cryptocurrencies do not represent commodities, financial contracts, or money”.
According to CryptoUK, the trade group that represents the UK’s digital asset industry, the fee is unreasonable. And will almost certainly be passed on to investors and dealers.
Treating cryptos differently than traditional financial products is damaging to the crypto industry
According to Executive Director Ian Taylor, treating cryptocurrencies differently than traditional financial products such as equities or commodities is damaging to the crypto industry.
He went on to argue that the Financial Conduct Authority (FCA) has imposed an onerous licencing system for exchanges. Which is another setback for the industry. Since January, all crypto-asset businesses operating in the UK have been under obligatory restriction to register with the Financial Conduct Authority (FCA). And adhere to AML (anti-money laundering) regulations.
The FCA outlawed crypto derivatives in January. And in June, it issued a consumer alert about 111 crypto firms that had yet to register with the agency.
According to sources, HMRC increased its efforts to find cryptocurrency tax evaders in April. Including particular requests on information on digital asset holdings on self-assessment forms.
Many crypto-asset exchanges were under mandatory instruction to hand up information about their clients’ actions and holdings by the British tax authorities in August 2019.