The HMRC is at the risk of losing millions in taxes to cryptocurrency investors. The Treasury may lose several million so pounds due to a tax loophole that was created during the cryptocurrency bull run during the last quarter of last year.
This loophole according to an HRMC spokesperson is a huge one. The “backdoor” was first noticed when bitcoin hit its all time high of 14,000 British Pounds ($19,343) in 2017. The HMRC’s fear is that bitcoin investors would declare their returns from this kind of market rise as gambling winnings.
Winnings from a gamble are usually not taxed becuse they are not seen as returns made from an investment, and this very thing is what the HMRC is concerned about considering that a crytpocurrency market boom could hit us once more and it (HMRC) would be left with a massive blackhole in its revenue. One of the HMRC’s spokespersons stated that
“We don’t normally tax betting and gambling because it is usually not classed as trading income. Cryptocurrency earnings could be exempt from tax is they are declared as gambling winnings. But there may be circumstances where factors such as the degree of skill and organisation would make the activity more likely to be taxable as trading income. Each case will depend on its own facts.”
Outdated Cryptocurrency Regulations
Many experts however, believe that Her Majesty’s Revenue and Customs’ (HMRC) approach towards crytpocurrency in itself is just superannuated. According to Etienne Wong, HMRC’s rules do their very best to confuse any amateur investor due to the lack of clarity in the distinctions between a gambler and a taxable investor. The HMRC’s guidelines being used for regulating bitcoin today happen to be the same ones that were used for regulation when bitcoin was even less than £500. Today one bitcoin costs about £9,125.
When a person is considered to be a legitimate investor and not a gambler, he/ is required ot pay an 18 per cent tax on any amount of money that exceeds £11,300. That is if they pay basic tax rate. However, if they are high tax rate payers they pay a 28 per cent tax instead on the amount of money.
Saffery Champness’ Langston Robert has on the other hand advised crypto users to outrightly declare themselves as investors even though this would mean taxation for them – not so pleasant. He believes that even if cryptocurrecny users deem their returns as that of gambling, since they are still gainig an asset and not actual cash, they remain taxable. He stated that
“It is difficult to see how the profits on mainstream cryptocurrencies such as Bitcoin could be seen as gambling profits. There may conceivably be some cryptocurrencies in which the markets are random, and therefore the profits could be treated as gambling.”
Bitcoin Regulation Could Be Closer Than Ever
News about this loophole is beginning to gain much attention after several threats of an imminent global cryptocurrency regulation.
Most of Europe’s superpowers are beginning to take matters into their own hands to regulate cryptocurrencies. Angela Merkel, Germany’s Chancellor recently met with France’s President Emmanuel Macron to discuss how to regulate bitcoin considering it was “a risk for financial stability”.
We have all seen what could happen to bitcoin should there be any regulatory effort on it. Between just Monday to Thursday £59.8 billion has been lost all because South Korean regulators decided they were going to halt all forms cryptocurrency trading.
European Central Bank board member, Yves Mersch, sparked similar controversy when she stated that bitcoin wasn’t good for the health of world finance at large.
The HMRC spokesperson also shared why the body he represented was concerned about this crytpocurrency growth and why they weren’t pleased with the tax loophole.
“Second, there are now banks which hold positions in bitcoin. It is a matter for the supervisors to judge how big the risks are.
Third, and what concerns me most, is when financial market infrastructures such as stock exchanges enter this business. That poses a major threat to financial stability.”
Presently, what is really bothering most investors is the fact that a regulation of bitcoin could be the untimely end of its rather lucrative bubble.
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