Andersen welcomes HMRC’s response to the Call for Evidence on the taxation of DeFi in relation to lending and staking
HMRC has issued a Call for Evidence on the taxation of DeFi whilst HM Treasury has also released a consultation response to the regulation approach to cryptoassets.
In this constantly evolving market, Zoe Wyatt, Head of Crypto & Digital Assets, and Laura Knight, International and Crypto Tax Director, warmly welcome this development. Zoe Wyatt commented: “It is encouraging to see that HMRC is listening to both taxpayers and experts, and we are pleased to see it trying to identify compromises between stakeholders and government. The current market highlights the volatility of cryptoassets and the importance of this compromise – in some cases the tax alone can outweigh the economic value of the transaction or tokens at the point of extraction.”
Explaining the existing rules to the many unrepresented taxpayers who have not previously needed to complete tax returns is a difficult conversation, particularly with the latest bear market. A call for simplification and a fairer approach taking account of the differences of cryptoassets as a class of assets should be a driver if the UK is looking to be a crypto hub and we note that HM Treasury has today advised there will be a consultation on wider cryptoassets later in the year.
HM Treasury has estimated that there are now 2.3 million crypto users in the UK, up from 1.9m. Previous research carried out showed that only 40% had read the Cryptoassets Manual and 60% had taken some form of informal advice, such as from others in the crypto community.
Laura Knight added: “HMRC has previously had to make a square peg fit a round hole. With various regulatory bodies trying to put standards in place to regulate the cryptoasset market, it is more important now than ever that the cryptoasset market is better understood across all stakeholders and the release today using the words ‘clear and proportionate’ by HM Treasury in relation to regulation is welcomed.”
Zoe Wyatt continued: “It is also encouraging that HMRC has engaged with the industry through roundtable events, to gain insight ahead of this latest consultation and call for evidence.
“Going forward, we advocate for the Treasury to examine the appropriate character of cryptoassets for tax purposes and consider its own separate regime within the tax legislation to move away from the shoehorn approach which HMRC has been faced with.”