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Crypto currency

Crypto currency -trading stock or an intangible asset

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Limited company client purchased crypto currency at the back end of the previous years accounts and I recorded this under intangible assets.at cost.

In this current present year of account its value has dropped dramatically but still has a value and so it is not of neglible value.

Reading latest blogs on the accounting/tax treatment of crypto currency, it  seems that I should or could have recorded  the crypto currency purchase and its value in the previous accounts as closing stock and so opening stock this year and: as current value closing stock so that the loss passes through the trading, profit and loss account and so is subject to trading rules and not CGT regime.  Each year I would ask the client for a current valuation and include this as closing stock.

The client has said 'he will hold the crypto currency for at least 5 years as he does not want to crystallise a loss and so sees this purchase as an investment.'

The crypto currency is NOT part of the trading activities of the limited company.

So, am I answering his question by recording as an intangible asset or should I record the purchase and subsequent valuations as oping/closing stock which passes thorugh the trading account?

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By johnt27
30th Jan 2020 14:19

Given you've used the word investment on multiple occasions in your post I think this answers your own question...

If the client is going to hold this for a number of years it's going to sit in fixed assets rather than current assets.

As for tax treatment, by the time your client sells HMRC should have made their mind up.

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By davidbarry
30th Jan 2020 15:15

Thank you for that. I agree with you that I did refer to 'Investment' several times. It is not clear though as many articles say it is a trade instead.
Anyway, what do you think of this.
I use Taxfiler software and I have amortised the loss to their heading 'Gains/Losses' and then 'Gain/loss from revaluation of intangible assets.'
When transferring to the Tax Return section it is treating this as a crystalised tax loss. If so, then must I put all future gains or losses from this one transaction through this part of the p & l account -almost like stock.
The other alternative is to amortise through the admin. section of the P & L account under 'other amortisation' and this adds it back in the same way as depreciation. So the question is do I generate a tax loss on this amortisation or not and what is correct procedure? Thank you for your time.

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Replying to davidbarry:
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By johnt27
30th Jan 2020 15:35

Not sure if the "many articles" you've read refer to tax treatment as this is what has been up in the air for so long. As for accounting treatment I think you go back to basic principles ie is it an asset - yes, is it held for trade - no (so not stock), is it a tangible/intangible - i don't think so - it brings no value to company's trade and you've said unconnected, therefore it's an investment.

Your tax loss isn't crystallised so I don't think it's taxable in the period until the crypto is fully or partly sold. I'd be tempted to say you're more likely to have a deferred tax asset (if you think one should be recognised).

I'm not familiar with Taxfiler but in other software the gain/loss recognised would go through P&L as a FV movement. I think you'd struggle to say it's other comprehensive income/expense but must admit I'd have to hit the FRS 102 book to be sure.

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Replying to johnt27:
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By johnt27
30th Jan 2020 15:50

So, I did hit the FRS 102 book and I'm going to backtrack and say you're right to have classified in intangibles.

Key thing for you to decide is whether you're going to account for at cost (less amortisation/impairment) or market value (FV). That affects the ongoing accounting treatment, but not the tax other than any tax movements would follow the linked accounting movement.

If you go down the cost root any impairment and subsequent reversal is all dealt with in P&L and any market value gains can't be recognised until sold.

If you go down the market value route any FV losses (and reversals back to cost value) go to P&L. Any FV gains (and subsequent losses back to cost) go through other comprehensive income (ultimately sitting in a revaluation reserve).

The differentiator between the two treatments is whether or not there is an active market. You can probably argue for Bitcoin and other similar ones there is - so you can take the reval route, if preferred. If it's an investment in something random or racy then I'd stick with the cost route.

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By davidbarry
30th Jan 2020 15:51

Thank you.

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By ireallyshouldknowthisbut
30th Jan 2020 16:34

Just to throw a spanner in this.

If its used largely on a transactional basis, then you would book as an overseas currency

If its bought and sold, it could be trading income, or it might be capital gains / losses if non-trading.

Several correct treatments for the same thing in different circumstances.

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Replying to ireallyshouldknowthisbut:
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By johnt27
30th Jan 2020 16:55

Most cryptos are valued in USD so agreed there's FX to consider. This would depend on cost or FV treatment

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