The UK digital services tax targets cryptocurrency exchanges

A recent update to the Queen’s Revenue and Customs (HMRC) regulations introduced a digital services tax that is levied on crypto exchanges operating in the UK.

UK cryptocurrency exchanges are now required to pay a 2% tax on digital services, the Telegraph reports. The UK tax authority HMRC does not recognize digital assets as financial instruments and therefore exchanges are not eligible for the financial exemption.

On November 28, the agency launched cryptocurrency exchanges, which are subject to the Treasury Department’s technology tax. The sales tax for digital services introduced in April 2020 is aimed at social media and search giants such as Facebook and Google.

The latest blow to crypto exchanges is the result of HMRC’s crypto asset classification, as the regulator explains:

“There are many types of crypto assets, each with different properties. Since cryptocurrencies are not goods, financial contracts or money, it is unlikely that crypto asset exchanges could benefit from an exception for online financial markets. ”

According to CryptoUK, the trading organization that represents the digital assets sector in the UK, the tax is unfair and can be passed on to investors and traders.

CEO Ian Taylor has stated that treating cryptocurrencies differently than other financial instruments such as stocks or commodities is detrimental to the crypto sector.

He added that it would be another major blow to the industry after the Financial Conduct Authority (FCA) laborious licensing system was put in place for exchanges. As of January, all UK-based crypto asset companies have been required to comply with AML (anti-money laundering) regulations and register with the FCA.

The regulator banned crypto derivatives in January, and in June the FCA warned consumers about 111 crypto companies not registered with it.

Related: The UK’s financial regulator is targeting crypto tax evaders

In April, Cointelegraph reported that HMRC had stepped up its efforts to apprehend crypto tax evaders and introduced explicit requirements for the retention of digital assets in self-assessment forms.

The UK tax authorities reportedly asked several crypto asset exchanges to release customer data from transactions and holdings in August 2019.