A new update to Her Majesty’s Revenue and Customs (HMRC), has created a digital services tax. This tax will be levied against cryptocurrency exchanges that operate in the United Kingdom.
According to a Telegraph report, crypto exchanges in the UK now need to pay a 2.2% tax on digital services. HMRC, Britain’s tax authority does not recognize digital assets in financial instruments. Therefore, exchanges are not eligible to receive financial exemptions.
The Treasury’s tech tax included cryptocurrency exchanges on Nov. 28. In April 2020, the digital services tax on revenue was implemented. It targets social media and search giants like Facebook and Google.
According to the regulator, the latest blow to crypto-exchanges comes from HMRC’s recent classification of crypto assets.
There are many crypto assets with different characteristics. It was stated that cryptocurrencies are not commodities, financial contracts or money and that it is unlikely that cryptocurrency-asset exchanges will be able to benefit from the exemption for online finance marketplaces.
CryptoUK, the trade association representing the British digital asset sector, said that the tax was unfair and would likely be passed on to traders and investors.
Ian Taylor, Executive Director, stated that cryptocurrency should be treated differently from other financial instruments like stocks and commodities.
He said that this is yet another blow to the industry after the difficult licensing system implemented by the Financial Conduct Authority for exchanges. All UK-based crypto-asset firms have been required to adhere to AML (anti money laundering) regulations since January and register with FCA.
In January, the regulator banned crypto derivatives and in June, it warned consumers about 111 crypto companies that were yet to register.
Related:UK Revenue Authority to Target Cryptotax Evaders
Cointelegraph reported in April that HMRC was intensifying its efforts to catch crypto tax evaders. They also made explicit demands for information about digital asset holdings on self assessment forms.
According to reports, the tax authorities in Britain demanded that crypto asset exchanges turn over customer details from holdings and transactions in August 2019.