Bitcoin exchanges have been dragged into the Treasury’s tech tax after HMRC said they would not qualify for an exemption granted to financial services companies.
The tax office has informed online cryptocurrency exchanges that they are subject to the levy, which is designed to ensure tech firms such as Google, Facebook and Amazon pay more to the Exchequer.
HMRC said crypto assets “are not financial instruments” and do not qualify as commodities or money, meaning online exchanges that sell cryptocurrencies such as Bitcoin and ethereum are not able to claim an exemption for financial marketplaces.
The digital services tax, which came into force last year, places a 2pc sales levy on online marketplaces, search engines and social media services that have a global revenue of over £500m and UK sales of over £25m.
It is expected to be phased out after a G20 tax deal earlier this year to punish avoidance, but remains in force until a replacement measure comes into effect.
Companies which may be hit by the levy include Coinbase, one of the world’s biggest exchanges. Its UK subsidiary reported sales of €21.2m (£18m) last year but the company recently reported that global revenues had quadrupled, meaning it is likely to pass the UK threshold in 2021.
CryptoUK, an industry body, is lobbying HMRC and The Treasury over the issue, saying it is unfair to treat cryptocurrencies differently to other financial assets. In the US, they have been treated as commodities.
In an update to its guidance on the digital services tax, HMRC said: “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.”
Ian Taylor, a director of CryptoUK, said that the move was a new blow to cryptocurrency exchanges after the “arduous” licensing regime introduced by the Financial Conduct Authority (FCA), and would lead to higher fees for people buying and selling cryptocurrencies.
Amazon and Google have both passed the cost of the digital services tax to merchants and advertisers respectively.
