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How HMRC Is Tackling Bitcoin Tax Evasion

28th Jan 2018
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Bitcoin is absolutely everywhere, and has been drawing in hordes of eager investors ready to cash in on their cryptocurrency-dreams. Seasoned investors and eager newcomers alike often don’t know where to start when it comes to answering questions about Bitcoin and tax payments, however, and government regulators are beginning to eye cryptocurrency transactions with much greater scrutiny than ever before.

So how can you protect yourself and others from charges of tax evasion if you rely on Bitcoin for your personal investments or business, and what should you know about regulatory efforts to crack down on cryptocurrencies? Follow these tips, and stay up to date on the latest political developments, and you’ll be safely and legally profiting off your Bitcoin investments in no time.

Bitcoin and taxes

One thing that’s come as a sizable shock to many Bitcoin investors is the fact that, yes, one is required by law to pay taxes on profits made by using cryptocurrencies like Bitcoin. HMRC, the American IRS, South Korean authorities and other governmental agencies everywhere are beginning to clamp down on Bitcoin more seriously following its spree of global headline grabbing which resulted in a temporary valuation crash, and investors should know that they won’t get off easy just because they’re toying with newly-emerging currencies.

While HMRC has acknowledged that Bitcoin, like other cryptocurrencies, operates without the oversight of a central banking or government authority, it’s not ready to let Bitcoin miners and investors off the hook when it comes to paying the government its fair share. Experts have already warned leading media outlets that government regulators will begin taxing cryptocurrencies with more zeal in the future, particularly as they become more globally popular and gain a dedicated following in major world markets. Investors currently involved by Bitcoin should start keeping clear ledgers of their transactions now if they haven’t already, lest they face request in the future by tax authorities that they’re unable to comply with due to a lack of preparedness.

While Andrew Bailey, the chief executive of the Financial Conduct Authority, has claimed that Bitcoins aren’t so much a currency as they are a commodity, it’s likely that governmental views of cryptocurrencies will rapidly evolve in forthcoming years following their widespread adoption by investors and eager newcomers to financial markets everywhere. Those who are mining Bitcoins may not have to worry about a VAT now, but as live cryptocurrency prices becomes more mainstream, possibly developing into an entire industry of its own, HMRC will clamp down more thoroughly and consider changing their present definitions to be more expansive in scope.

Those who currently trade in Bitcoin frequently, however, many have to start worrying sooner than others; those who garner in tens of thousands of pounds from digital currency transactions, for instance, could have those gains taxed as income. While an HMRC tax shock could be subtlety brewing under the surface, the reality is that regulators are already viewing Bitcoin and other digital currencies with scrutiny, and those who aren’t protecting themselves now could find the long arm of the law breathing down their necks.

The HMRC’s forthcoming challenges

The HMRC won’t have an easy time regulating Bitcoin and other digital cryptocurrencies, however. Already, HMRC is slowed down by a myriad of ludicrous claims and outrageous tax expenses that gum up their operations and require valuable time to sort through, and in the future cryptocurrencies will likely only make this worse. Today’s ridiculous business expenses which make headlines could very well prove comical compared to what we see in the future, when business owners and individuals try to get away with absurd, cryptocurrency-based tax write-offs.

Bitcoin’s backers shouldn’t take that as a sign that they’ll be able to skirt by and make huge profits off cryptocurrencies without the government noticing, however. Lawmakers are likely to take cryptocurrency issues more seriously in the future, particularly if they keep being used for illicit transactions on the dark web or are adopted for money laundering purposes.

Traders in the future should expect to potentially have to expose their identities online before becoming involved in high levels of trading or Bitcoin mining, and a greater emphasis on cybersecurity from governments should be expected by everyone. Protocols like reporting suspicious behavior and carrying out due diligence when it comes to making your investments are already becoming codified into law, and governments will only clamp down more as time goes by.

Don’t let yourself be caught off guard by a regulatory crackdown as Bitcoin and other digital currencies become more widely utilized. Keep up to date on HMRC’s latest regulations, and keep an eye on the headlines for notable lawmakers addressing the subject of cryptocurrencies, and you’ll be well-prepared for the inevitable HMRC crackdown on Bitcoin and other currencies that’s sure to be coming.

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By Anca Alexandra
11th Mar 2018 22:02

Tax treatment of Bitcoin and similar cryptocurrencies

Corporation Tax:
The profits or losses on exchange movements between currencies are taxable.
HMRC has not yet identified any need to consider bespoke rules.
Therefore no special tax rules for Bitcoin transactions are required. The profits and losses of a company entering into transactions involving Bitcoin would be reflected in accounts and taxable under normal CT rules

Income Tax:
The profits and losses of a non-incorporated business on Bitcoin transactions must be reflected in their accounts and will be taxable

Chargeable gains:
Corporation Tax and Capital Gain Tax - if a profit or loss on a currency contract is not within trading profits and losses, it would normally be taxable as a chargeable gain or loss for CGT purposes.
Gains and losses incurred on Bitcoin or other cryptocurrencies are chargeable or allowable for CGT if they accrue to an individual or, for CT on chargeable gains if they accrue to a company.

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