UK to impose digital services tax on cryptocurrency exchanges

The UK’s Her Majesty’s Revenue and Customs (HMRC) recently updated its regulations to impose a digital services tax on cryptocurrency exchanges operating in the UK.

According to the Daily Telegraph, UK cryptocurrency exchanges will have to pay a 2% digital service tax. The UK tax authority HMRC does not recognize digital assets as financial instruments, so exchanges are not eligible for financial exemptions.

On November 28, the agency included cryptocurrency exchanges under the UK Treasury’s tech tax. The digital services tax was introduced in April 2020 targeting social media and search giants such as Facebook and Google.

The latest blow to crypto exchanges comes as a result of HMRC’s classification of crypto assets, with the regulator explaining:

“There are a wide variety of crypto-assets, each with different characteristics. As cryptocurrencies do not represent commodities, financial contracts or currencies, crypto-asset exchanges are unlikely to benefit from the exemption for online financial markets.”

CryptoUK, a trade association representing the U.K.’s digital asset industry, said the tax was unfair and would likely be passed on to investors and traders.

Executive director Ian Taylor said treating cryptocurrencies differently from other financial instruments such as stocks or commodities would be detrimental to the crypto sector.

He added that this was another heavy blow to the industry after the Financial Conduct Authority (FCA) introduced a tough licensing regime for exchanges. Since January this year, all crypto asset companies based in the UK must comply with anti-money laundering (AML) regulations and register with the FCA.

In January, the FCA imposed a ban on crypto derivatives, and in June, the regulator warned consumers not to use 111 crypto firms that were not registered with it.

In April, Cointelegraph reported that HMRC was stepping up its efforts to catch crypto tax dodgers and explicitly requiring details of digital asset holdings on self-assessment forms.

As reported, the UK tax authority requested several crypto asset exchanges in August 2019 to provide detailed information on customer transactions and holdings.