A recent update to Her Majesty’s Revenue and Customs (HMRC) regulations has introduced a digital services tax that will be levied on cryptocurrency exchanges operating in the United Kingdom.
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Crypto exchanges in the UK will now have to pay a 2% digital services tax according to a Telegraph report. Britain’s tax authority, HMRC, does not recognize digital assets as financial instruments and therefore exchanges are not eligible for financial exemptions.
On Nov. 28, the authority included cryptocurrency exchanges under the Treasury’s tech tax. The digital services tax on revenue was introduced in April 2020 targeting social media and search giants such as Facebook and Google.
The latest blow to crypto exchanges is a result of the HMRC’s classification of crypto assets, as the regulator explained:
“There are a wide variety of crypto assets, each with different characteristics. It said that because cryptocurrencies do not represent commodities, financial contracts, or money, it is unlikely that crypto-asset exchanges can benefit from the exemption for online financial marketplaces.”
According to CryptoUK, the trade body representing the digital asset sector in Britain, the tax is unfair and is likely to be passed on to investors and traders.
Executive Director Ian Taylor stated that treating cryptocurrencies differently to other financial instruments such as stocks or commodities is detrimental to the crypto sector.
He added that it is another heavy blow to the industry following the arduous licensing system introduced by the Financial Conduct Authority (FCA) for exchanges. Since January, all UK-based crypto-asset companies have had to comply with AML (anti-money laundering) regulations and register with FCA.
In April, Cointelegraph reported that HMRC was ramping up its efforts to snare crypto tax evaders and introduced explicit demands on details of digital asset holdings on self-assessment forms.
Britain’s tax authorities reportedly demanded that several crypto asset exchanges hand over details on customers from transactions and holdings in August 2019.