HMRC finally published its policy paper on the taxation of cryptoasset exchange tokens for companies and other businesses on 1 November 2019. HMRC recognises that the cryptoassets sector is fast-moving and developing all the time and as a result, it reserves the right to develop its views as the sector develops. This paper only covered the tax treatment of exchange tokens such as bitcoin; further guidance relating to security tokens and utility tokens is to follow.

The guidance is unsurprising and consistent with its guidance on the taxation of cryptoassets for individuals (see below). However, HMRC has already admitted that its views may change as the sector evolves and, given how long this policy paper has taken, there is a risk that HMRC will remain on the back foot for a while.

HMRC confirms, as it did in the guidance for individuals, that it does not regard any exchange tokens as money or currency.

Corporation Tax: where an exchange token is being used in a trading activity (whether there is a trading activity should be determined using general principles), companies will be subject to corporation tax (CT) on their trading profits. Companies must calculate their taxable profits in GBP and so transactions must be converted using the appropriate exchange token price at the time of each transaction. A consistent methodology must be used to arrive at an appropriate value and companies must keep records of the valuation methodology used.

For a non-trading activity, an exchange token will be treated as an investment and so any gain on its disposal will be subject to CT on chargeable gains. Pooling of exchange tokens is mandatory (except in two specific situations) to allow for simpler tax calculations on the acquisition and disposal of exchange tokens. This means that rather than tracking the value of each exchange token individually, the taxpayer can pool each type of asset and then a disposal is essentially a part disposal of those assets.

HMRC do not consider that exchange tokens create a loan relationship because: (i) exchange tokens are not money; and (ii) an exchange token is unlikely to constitute a debt as there is typically no counterparty standing behind the exchange token. The exclusion to this (and where the loan relationship rules will apply) is where exchange tokens have been provided as collateral security for an ordinary loan of money (whether the company is the debtor or creditor).

HMRC provides specific guidance for exchange tokens created by hard forks (where a sufficient proportion of the community that controls the exchange token wishes to make changes which result in a new type of exchange token coming into existence) and airdrop exchange tokens (an allocation of exchange tokens given, for example, as part of a marketing or advertising campaign).

Employment taxes: Where an employee receives exchange tokens as earnings from their employer, a best estimate of the value of the asset is subject to income tax and National Insurance contributions.

VAT: VAT will be due on any goods or services sold in exchange for exchange tokens. The value of the supply will be the GBP value of the exchange tokens at the time the transaction takes place. No VAT will be due on the supply of the exchange tokens themselves. Intermediary services in relation to any transactions in exchange tokens as well as any supply of services required to exchange exchange tokens for legal tender will be exempt from VAT under the financial services exemption. Note however that this guidance is only provisional pending further developments in respect of the regulatory and EU VAT positions.

Stamp duty:

(i) Transfer of exchange tokens: HMRC does not consider the transfer of exchange tokens to fall within the scope of stamp duty (SD) as they are not "stock or marketable securities" or stamp duty reserve tax (SDRT) as they are not "chargeable securities".

(ii) Exchange tokens as consideration:

a. SD: exchange tokens are generally not considered to constitute consideration for SD purposes. As such, where exchange tokens are given as consideration for the acquisition of stock or marketable securities, no SD will be due on their value. However, exchange tokens could count as consideration if they are treated as debt.

b. SDRT: exchange tokens are considered to constitute consideration for SDRT purposes and therefore SDRT will be due on the market value of the exchange token at the time of acquisition of chargeable securities.

Stamp Duty Land Tax: HMRC has confirmed that the transfer of exchange tokens is not a land transaction and as such no stamp duty land tax (SDLT) will be payable on such transfers. Where exchange tokens are used for the purchase of land, the market value of the exchange token at the date of the transaction would be chargeable to SDLT.

Venture capital schemes: HMRC are seeing an increase in the use of exchange tokens by innovative early-stage businesses and as a result, an increase in the number of advance assurance applications requesting confirmation on the use of exchange tokens in venture capital schemes. HMRC has commented that given the rapid pace of development in the exchange tokens industry, there may be times when they have to decline to give an opinion because the factual uncertainty involved is too great.

Taxation of cryptoassets for individuals: HMRC published guidance on the taxation of cryptoassets for UK resident individuals on 19 December 2018 and this guidance also only covered the taxation of exchange tokens. Consistent with its approach to businesses, HMRC confirmed that exchange tokens are not currency or money. As the exchange tokens will usually be held by an individual as an investment, any gain made will be subject to capital gains tax at the time of disposal. In limited circumstances (e.g. an employee receiving exchange tokens as a form of non-cash payment from their employer or as payment for mining), an individual may be subject to the higher rates of income tax and national insurance contributions.