The diverse digital world of crypto assets is rapidly evolving. With traditional assets becoming more digitised, the regulatory and tax landscape are advancing to match this significant pace.
The potential of the underlying technology in this relatively new digital economy is only scratching the surface of innovation and opportunity.
Our proficient crypto asset team have the expertise to adapt and advise as regulation and tax continue to develop. From investors to NFT project creators and metaverse developers, we work closely with our clients to support them on their digital journey, advising on the current tax treatment of their digital assets, the associated reporting obligations, and provide potential structuring options to explore.
With crypto and digital assets providing increasingly varied and accessible investment opportunities, we are here to help our clients navigate the challenges in this emerging digital landscape.
Key challenges of owning digital assets
- There’s no specific tax legislation for these assets, so they’re instead covered by broader tax rules. HM Revenue & Customs (HMRC) are continuing to produce guidance to assist taxpayers, but there are still areas of uncertainty, contention, and practical problems.
- Ensuring that all tax and reporting compliance is appropriately and accurately completed, with supporting evidence of the figures used. If this is fulfilled and HMRC ever challenges an individual’s position, any completed calculations can be easily demonstrated. Filing should also be up-to-date based on any changes resulting from new guidance, legislation or case law.
- Because of the uncertainty surrounding these assets, historic tax errors are not uncommon. We help prepare voluntary disclosures to bring these up-to-date and conclude the matter.
- The situs and source of digital assets can dramatically impact the tax position of a UK tax resident, particularly for annual and inheritance tax purposes. Given the nature of these assets, there’s ambiguity on where they’re situated, so it’s important to mitigate any risks. It’s possible to establish a trust or corporate structures to hold crypto portfolios, which would assert that they’re non-UK situs.
- Incorporating digital assets into wider family wealth planning to consider succession or tax efficient structuring. Given the growth in value of some digital assets, these can often cover a large proportion of an individual’s estate, but they haven’t always considered what would happen in the event of their death.
- The accounting treatment of digital assets has a degree of uncertainty. Tokens would be considered an intangible asset, but there are situations where it can vary. This becomes particularly complex when a business uses cryptocurrency as a current asset in the same manner as they would a cash balance. Calculating the gains and losses on disposal when the cryptocurrency is exchanged for goods and services can be a challenge, as the function of the asset can differ from the accounting treatment in some situations.
- VAT is a hugely complex consideration for individual investors when creating and selling digital assets or paying for goods and services with tokens. Cross board transactions and identifying buyers also comes with added intricacies.
- Many companies are already providing remuneration on digital assets as an incentive for employees. These often utilise a Simple Agreement for Future Tokens (SAFT), and the taxation of these needs to be carefully considered to avoid immediate tax charges, especially where the employee may not have the liquid funds available to cover this liability. This can also create National Insurance contributions (NIC) and pay as you earn (PAYE) obligations for the issuing company.
How we can help
When it comes to crypto assets, at Saffery we know that a proactive approach is looked on favourably by HMRC. That’s why we prioritise turning our advice into action, early on in the process. In this everchanging sector, we keep on top of any latest developments, and bridge the gap between the digital and more traditional reporting compliance.