Businesses and Crypto

Crypto assets are here to stay, but as the ‘new kid on the block’ in contrast to more traditional options, they can cause uncertainty around the area of tax implications.

This is the fifth in a series of short articles that explore the emerging world of crypto assets, focusing specifically on the tax implications of businesses engaging in crypto transactions.

In previous articles, we covered the various tax consequences on individuals making gains and receiving income related to crypto. It is also common for companies and other businesses to engage in crypto transactions, whether that be as investments, a method of paying for services or even paying staff.

The rules for businesses regarding ‘trading’ are largely aligned with those for individuals. Unless the entity is in the business of trading crypto assets, it is unlikely that it will be trading crypto with the organisation, sophistication and regularity that would deem it a trade for tax purposes. If the crypto activity is not deemed to be a trade, then for companies, other areas of the Corporation Tax legislation will need to be considered, such as loan relationship rules, intangible fixed asset rules and chargeable gains.

Unless a crypto asset is being used as security/collateral for the loan of money, it is unlikely that a loan relationship could exist in relation to the crypto asset, given that HMRC does not consider crypto to be ‘money’. It is similarly unlikely that a crypto asset will have been created or acquired by a company for use on a continuing basis for it to be treated as an ‘intangible asset’. This means that, in most cases, a company’s crypto ‘investment’ activity will be subject the chargeable gains rules.

Where companies or unincorporated businesses use crypto to buy or sell items, the usual rules in terms of recognising the expense or income are in point, the value translated to the pound value of the payment made or received at the time. If a business is VAT registered, sales of goods or services paid for in crypto should have VAT accounted for in the normal way. Using crypto as a payment mechanism should not alter the normal VAT considerations in terms of inputs and outputs.

As we’ve covered in a previous article, if employees are paid in crypto, PAYE needs to be dealt with in the usual way, again translating to the pound value at the date of payment.

The supply of a crypto asset is typically treated in the same way as fiat currencies – as exempt from VAT. Finally, tokens received as a reward for mining (covered in article 4) are generally outside of the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes. However, it should be noted that worldwide, the VAT treatment of the supply of crypto assets and related items appears to be under evolving consideration, so the picture may change.

To summarise, investments by businesses in crypto will usually be subject to capital gains rules. Using crypto to buy and sell goods or services, or to pay employees should be dealt with in the same way as if the payment was in fiat currency. The supply of crypto itself is outside the scope of VAT.

In our next article we will turn our attention to HMRC enquiries, disclosures and the records which can be used to assess the tax position of those engaging in crypto transactions.

If you have any questions about tax on crypto assets, or tax issues in general please get in touch on 0203 675 8122 or email Jeremy at jeremy.johnson@intaxltd.com.