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Bitcoin Trading - Supporting Evidence

Bitcoin Trading - supporting evidence

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My client has started a bitcoing trading operation through a Ltd Co. The bank account shows monies being deposited by third parties (transactions have the third parties name), and  monies going out into a BitCoin exchange. From that point it gets very hazy, because we can see that bitcoins have been purchased, but they are then placed into wallets which are annonomous in that there is nothing to identify the owner by name. This prevents us having acceptable proof that funds going out are to fulfil genuine company trade expense. 

Is anybody else struggling with this ? 

Ideas and links to published guidance most welcome !

 

Replies (10)

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Ivor Windybottom
By Ivor Windybottom
07th Apr 2021 21:59

Sounds tricky.

HMRC have published their Cryptoassets manual, but I haven't read it.
It's here: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual

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By paul.benny
08th Apr 2021 07:08

Have you considered the money laundering risks now associated with this client?

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By Wanderer
08th Apr 2021 07:20

Platta wrote:

This prevents us having acceptable proof that funds going out are to fulfil genuine company trade expense. 

From your description of what's going on these might not be expenses of the company.
You need to establish exactly what the contractual arrangements are.
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By Platta
08th Apr 2021 09:15

Thanks for comments so far.

I am confident with HMRC's tax treatment guidance, and the guidance from ICAEW on how to account for Crypto's - but yes - Money Laundering and Business Expense rules are key considerations when there is no supporting documentation.

I have indicated to the client that, whilst I am not doing an audit, I still can't be party to a set of accounts with unsubstantiated transactions - so I need something concrete to show that the expenditure has actually been made, and that the resulting product has been delivered to the customer. I await their response !

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Melchett
By thestudyman
08th Apr 2021 09:19

Wow this is going to get complicated for you and your client.

Ownership - is the trading account in the name of the client or the company?

I'm very much leaning towards this is just a personal side hobby, unless they can dig out documentation that shows the exchange account is of a limited company. I don't know many (or any) exchanges who offer bitcoin trading via a limited company. This will be set in the terms and conditions of opening an account.

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Replying to thestudyman:
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By Platta
08th Apr 2021 09:27

The Trading Account is in a private name, but the payments from customers have come into the company - so total mix up !
(via Google I see there are a couple of providers that accept corporate accounts)

On that basis I could probably argue that the transactions belong to the client personally, or to the company - but either way the intent was definitely to make profit, and the client informs me that further trades have occurred after the company year end, so it moves out of the realms of Hobby - I believe it must fall under either Company Tax, or Self-Assessment.

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By johnt27
08th Apr 2021 09:30

Sounds like your client should be registered with FCA if they are providing crypto trading services on behalf of others, if they aren't registered you really should advise them to do so.

If FCA registration is required this will precipitate a whole world of compliance requirements, client money, capital adequacy etc and I'd suggest recording the transactions is the least of your problems.

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Replying to johnt27:
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By Platta
08th Apr 2021 09:43

Thanks - interesting aspect that I hadn't considered.

I will take a look at the FCA requirements, and advise accordingly.

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Replying to Platta:
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By johnt27
08th Apr 2021 10:02

Particularly interesting as, if FCA registration is required, your client is trading illegally and FCA are actively pursuing unregistered businesses as they become aware of them.

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Replying to johnt27:
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By Tax Dragon
08th Apr 2021 11:13

On the other hand, if the client hold the funds on behalf of others, those funds are not part of the client's assets. Profit on those funds is not the client's. They may end up in prison as a result of their activities, but at least it shouldn't be as hard as first feared to get their accounts right.

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