UK to impose digital services tax on cryptocurrency exchanges

HM Revenue and Customs (HMRC) recently updated its regulations to impose a digital services tax on cryptocurrency exchanges operating in the United Kingdom.

Cryptocurrency exchanges in the United Kingdom will have to pay a 2% digital services tax, according to The Telegraph. British tax authority HMRC does not recognize digital assets as financial instruments, so exchanges are not eligible for financial exemption.

On Nov. 28, the agency brought cryptocurrency exchanges under the U.K. Treasury’s tech tax. The Digital Services Tax was introduced in April 2020 against social media and search giants such as Facebook and Google.

The latest blow to crypto exchanges is caused by HMRC’s classification of crypto assets, with the regulator explaining:

“There are a wide variety of cryptoassets, each with distinct characteristics. As cryptocurrencies do not represent commodities, financial contracts or currencies, cryptoasset exchanges are unlikely to benefit from an exemption for online financial markets.”

CryptoUK, the trade association representing the U.K. digital assets industry, said the tax was unfair and likely to be passed on to investors and traders.

Executive director Ian Taylor said that treating cryptocurrencies differently from other financial instruments such as stocks or commodities is not good for the crypto space.

He added that this was another blow to the industry after the UK's Financial Conduct Authority (FCA) introduced a daunting licensing regime for exchanges. Since January this year, all UK-based crypto asset firms have had to comply with anti-money laundering (AML) regulations and register with the FCA.

In January, the FCA imposed a ban on crypto derivatives. In June, the regulator warned consumers against using 111 crypto firms that were not yet registered with it.

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

In August 2019, UK tax authorities reportedly asked several crypto asset exchanges to provide details of customer transactions and holdings.

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