Crypto as an investment for a Startup Business

raise of equity with crypto, how to cash out and tax implications

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Hello everyone,

We want to open a new UK museum (Limited Company). We found an investor ready to provide crypto assets (Bitcoin) for a museum as a part of a SAFE (investment) agreement. The main pitfall is how to legally cash out the crypto assets to use them for business (museum) purposes. We tried to open a business account on different Crypto exchanges to cash out straight to a business bank account, but they don't want to work with museums for now.

The only idea I have right now is if a company gets crypto on its wallet from an investor (e.g., a SAFE agreement), the company transfers the crypto to a director's wallet, and he cashes it out on his bank account and transfers the cash to the company account. The in/out transactions can be made on the same day for tax efficiency.

Investing Schema: investor's crypto wallet -> company's crypto wallet -> director crypto wallet -> director bank account -> company bank account. 

Can I use such an approach, and are there any tax implications? Or is there a better approach to getting money through crypto?

Thanks a lot!
Best Regards, Alex.

 

Replies (14)

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paddle steamer
By DJKL
07th Feb 2024 10:30

Why can the investor not convert the Bitcoin to GDP before he/she donates?

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Replying to DJKL:
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By displace4365
07th Feb 2024 12:32

The investor is not a resident of the UK and lives in Ukraine; the investor cannot use SWIFT due to the war (the Central Bank restrictions), so he cannot convert the money to crypto in the UK.

He only can send some crypto. I think we should avoid Bitcoin due to volatility and tax implications, and use stable coins like USDT, so it will be easier.

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Replying to displace4365:
paddle steamer
By DJKL
07th Feb 2024 12:59

Well, not sure any bank is going to be happy having this UK museum limited company venture as a customer where the main (?) investor's source of funds is so opaque.

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Replying to DJKL:
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By FactChecker
07th Feb 2024 13:47

Quite.

OP: have you not encountered the concept of anti-money laundering regs (because the Banks have, as will any Accountants you wish to appoint and on down the line).
Really "are there any tax implications?" is the least immediate question you should be asking.

FWIW although a public forum isn't the right place to divulge more information (what kind of museum? / charitable or other status? / nature of investment and type of returns on offer? / and much more) ... it's therefore also not the right place to seek advice that it sounds like you desperately need.

Start at the beginning with a business plan and a financial adviser/accountant, and only then start considering external investments.

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By JustAnotherUser
07th Feb 2024 11:13

As soon as the investor transfers the funds to you (depending on location) its likely a disposal and a taxable event. So I'm guessing the investor is not based on the UK so no idea on location or tax implications, but likely the reason they wish to use crypto and not local currency.

If this is Bitcoin, and a substantial amount, look to take out a loan against the value and as they say, hodl. Ask anyone in the industry and the expectation is that we are moving into a new growth period for the asset in the next 6 to 12 months.

Google it but local currency loans on crypto backed collateral are available in the uk.

And, get an accountant! (maybe one that accepts, understands and doesn't belittle crypto :) )

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Replying to JustAnotherUser:
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By JustAnotherUser
07th Feb 2024 11:19

Your biggest issue is volatility and time.

You could be sent £1,000,000 in Bitcoin

It sits in your wallet for x days, then you transfer from company wallet to director, your making a gain or loss, this could be 1% or 30% depending on volatility.

you then go from director to GBP... again you are faced with volatility.

Whatever you do, do it fast if you want a confident exchange rate.. or sit on it.

Now your getting into a mixture of same day, B&B and disposal rules... right mess, not what you want during a start up.

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Replying to JustAnotherUser:
Danny Kent
By Viciuno
07th Feb 2024 11:39

If it's a start up it is probably going to be capital intensive - why would they want to be holding onto an asset as volatile as bitcoin?

Also issues around maintaining LTV for these loans as there is the risk of the coins being liquidated to maintain the lenders requirements. Where will they get the cash to stop the margin calls - if I was another investor I'd be pretty annoyed if that is what my funds were being used for.

Pretty sure Celsius loan holders are still on the hook for their loans, despite the platform keeping their collateral so huge downsides here.

Very risky IMHO for anyone needing use of the funds - I wouldn't be recommending to anyone that they borrow against crypto with such an unregulated, and so far untrustworthy (Celsius and FTX to name a few huge players that have gone to the wall), market. Not that I'd be making recommendations either way, but I'd certainly be pointing out the risks.

OP - I'd be worried about ML flags by the bank even if transferred to the director, cashed in and then transferred over. Especially if we are talking about significant sums.

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Replying to JustAnotherUser:
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By displace4365
07th Feb 2024 12:47

Yeah, thanks. It is hard to find an accountant that will understand crypto.
We want to use crypto because the investor lives in Ukraine, and one cannot use SWIFT due to the war restrictions. The investor does not mind if the company fails, meaning we don't need to return the money, but he wants a part of the shares if the business succeeds.

It is around 25-30 thousand pounds in money. I think it is better not to use Bitcoin to exclude volatility and get money straight in a stable coin like USDT/USDC, so we don't have volatility at all.

We wanted to get a stablecoin (let's say USDT) from an investor using a SAFE agreement (cash first, shares after) and deposit it to the company's bank account through a director's personal account.
But I am afraid, in this case, I will need to submit a Self Assessment describing the money and the purpose of it, and as soon as they don't belong to me, there is no need to pay taxes.

Can you recommend any UK accountants that are good with such things?

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Replying to displace4365:
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By JustAnotherUser
07th Feb 2024 13:53

The whole thing seems like a legislative mine field, may need an accountant and a solicitor.

All this for 25 to 30k in crypto seems extremely high risk but low reward for something like a museum and the potential nightmare you will have to go through if any number of flags gets raised anywhere.

Do agree, if your doing crypto and they can do a stable coin, that's the path I would take If I had to.

Yes you can find a crypto friendly bank like Monzo, open up a coinbase and have the funds transferred to GBP their side, but there will be lots hidden you wont be able to account for, that's a big enough number to raise flags in a few places.

Best of luck.

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By ireallyshouldknowthisbut
07th Feb 2024 14:22

Are you sure this isnt an advance fee fraud?

ie you pay money now for a promise of some cash later?

Whole thing smells very fishy.

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Replying to ireallyshouldknowthisbut:
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By JustAnotherUser
07th Feb 2024 14:39

Id be more worried on the source of the funds from someone who "The investor does not mind if the company fails "

It is reported that over $225 million in crypto has flowed into the Ukraine from people supporting war efforts.

Receiving funds from someone well off enough to send crypto on a whim, but cant deal with cash, and isnt fussed about a return.... smelling very fishy.

Maybe ask him to send his wallet address and trace the source of the funds, don't want to be seeing vladputin.ens as the source

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Replying to JustAnotherUser:
By ireallyshouldknowthisbut
07th Feb 2024 14:42

Could well be part of a "wash" operation.

Deposit funds, and ask for them back the following day.

hard to say, but clearly is bent as a nine bob note.

@OP, and yes I understand how crypto works.

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Replying to JustAnotherUser:
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By displace4365
07th Feb 2024 16:07

Ok, I will give more context.
And you will understand why "the investor doesn't mind if the museum fails".

There is already a museum in Ukraine. It is up and running, but it suffers due to the war. I have worked with the client and museum for several years and trust him. He wants to move the museum to the UK because there are more perspectives here, but the owner cannot move to the UK right now.
I am in the UK and can receive all the equipment and run the museum.
So, from my side, I will be a nominal director, and he will become a legal owner and museum director in a few years. So, it is his idea, his risk, and I want to minimise my risk to a minimum. Of course, a museum can fail, which is highly unlikely, because the UK is way more expensive than Ukraine; in this case, I also want to protect myself because I don't want to be in debt (e.g. repaying a personal loan) if something goes wrong.

The only question now is how to get money because I don't have initial start-up cash to use right now, but the current museum's owners do. Due to the Central Bank restriction, you cannot transfer money outside Ukraine; only incoming transactions are allowed.
The money is legal and comes from the existing museum activity, the same as crypto. There are proofs of it, and they can be provided to banks/HMRC/police, whoever asks for them.

For now, a safe option is pure cash; if he brings it to the UK with all the needed documents, and we will deposit it into a company account immediately.

The business plan is amazing. The museum will thrive in the UK because Brits and foreigners will love it; we know this for sure.

I agree; I think I need to find a good solicitor and accountant for this that will help us start.

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Replying to displace4365:
paddle steamer
By DJKL
07th Feb 2024 16:48

You will not get far dropping £30k cash into a UK bank account, bank will likely freeze account.

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