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Commercial News


13th April 2021

On 31 March 2021, HMRC launched it's Cryptoassets Manual (the first comment below contains a link to the manual). As HMRC acknowledges, the manual is a work in progress. The cryptoassets space is fast-moving and ever-changing. There is a great deal of uncertainty around both the legal and tax implications of cryptoasset transactions owing to a regulatory vacuum. HMRC's manual will be updated as the legal and tax treatment of cryptoassets evolve.

In a series of Lexology posts, I will highlight the more interesting aspects of HMRC's manual. This represents the first such post.

In relation to the taxation of individuals, HMRC considers that it will be very rare for an individual to be "trading" in cryptoassets. This view isn't substantially different to HMRC's attitude to share trading. However, as the case of Ali v HMRC [2016] UKFTT 8 demonstrates, you don't need a great deal of sophistication to maintain that you are "trading" shares. Essentially, you need to demonstrate that:

(1) you are undertaking the activity on a full-time basis;

(2) you have some sort of a trading strategy, for example, relying an arbitrage strategy, or in the case of Ali v HMRC a strategy simply based on reading broker research reports; and

(3) You have a business plan, ideally in writing (Mr Ali, in Ali v HMRC, managed to get away with articulating an oral business plan at the Tribunal).

As with every "trading" case, what amounts to "trading" is in the eye of the tribunal judge. Different judges can reach different conclusions, even based on the same facts.

If you or your client make a loss selling cryptoassets, you will want to do everything possible to sustain that loss is a "trading loss" to set off against other income. As Ali v HMRC demonstrates, this is perfectly feasible. 

However, it does require some appetite for risk and potentially a dispute with HMRC. If the event the matter goes before the Tribunal, it may also require getting the right judge.

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