Cryptocurrency exchanges operating in the United Kingdom will be compelled to pay the 2% digital service tax following a new update to the Her Majesty’s Revenue and Customs (HMRC) regulations.
The exchanges do not qualify for an exemption granted to financial marketplaces because the HMRC doesn’t recognize digital assets as financial instruments,” The Telegraph reports.
The digital service tax was introduced in April last year to ensure technology giants like Facebook and Amazon pay more.
The latest tax blow to the exchanges follows the update to the guidelines by the HMRC that stressed that there are many crypto assets with varied attributes.
HMRC added that since cryptocurrencies like Bitcoin don’t represent money or financial contracts, consequently, exchanges will not benefit from the exemption accorded to online financial markets.
“There are a wide variety of crypto assets, each with different characteristics. It said that because cryptocurrencies do not represent commodities, financial contracts or money, it is unlikely that crypto-asset exchanges can benefit from the exemption for online financial marketplaces,” the HMRC noted.
Blow to cryoto sector
The latest development has been met with opposition from players in the crypto sector led by lobby group CryptoUK. According to the entity, the exemption is unfair to treat cryptocurrencies differently from other financial assets.
Ian Taylor, a director of CryptoUK said the move is retrogressive to the cryptocurrency space while blasting the laws introduced by the Financial Conduct Authority (FCA). He noted that the law would directly impact crypto investors as it would raise the fees.
Furthermore, the latest laws add to the UK cryptocurrency taxation laws that are considered murky. Currently, there are no taxes that apply specifically to cryptocurrency assets in the UK. Anyone holding them as a personal investment is subject to capital gains tax on their profits.
In recent months, the U.K. regulators have been hard on crypto exchanges enacting laws to crack down on several operators. For instance, the FCA banned crypto exchange Binance from operating in the UK over weak anti-money laundering laws.