Who and how regulates cryptocurrencies in the UK
United Kingdom is a European leader in investing in fintech. However, the country's authorities have not yet developed a legislation on cryptocurrencies and tokens. Let’s find out what position the state holds on digital assets today.
Development of fintech
The UK holds leading positions in the development of blockchain projects and fintech. The reports of international companies prove this. According to the Atomico fund study, United Kingdom invests more than other European countries in the development of its technological superiority.
The country has a developed banking sector and finance industry, so international business often chooses this jurisdiction for its activities.
Nevertheless, the state has not yet developed an official position on cryptocurrencies, tokens and blockchain companies.
Position of the financial regulator
The Financial Services Authority (FSA) holds the same position on cryptocurrencies since 2014: they claim that digital assets are not subject to regulation by the country's financial legislation, since it is not money.
Nevertheless, FSA has created a special program for cryptocurrency companies, Innovation Hub, where organizations related to digital assets can consult on the subject of legal compliance with the legislation of the country. Moreover, Innovation Hub participants can run business without registration or licenses.
Legal status of cryptocurrency
Cryptocurrency is also not considered electronic money in the UK. The relevant Electronic Money Regulations state that such assets do not include cryptocurrencies, since the release is decentralized.
According to the Payment Services Regulations, cryptocurrencies are not recognized as a value. It is also not a banknote, nor a coin, electronic money and monetary units.
Today, the UK's cryptocurrency is a complex combination of numbers and letters obtained during cryptographic calculations. That is why the digital assets are outside the legal field of the Anti-Money-Laundering Law. The paradoxical situation was created: the state bodies of Great Britain do not have the power to regulate cryptocurrencies.
Digital assets and taxes
Her Majesty`s Revenue and Customs (HMRC) takes a different position on cryptocurrencies. The department believes that cryptocurrencies are assets or private money. So, HMRC has the right to impose taxes on cryptocurrency transactions.
When trading cryptocurrencies and fixing income, individuals are required to pay income tax, and companies should pay corporate tax. Such revenues are displayed on the organizations’ accounts just like any other asset. In some cases, income may become an object for Capital Gains Tax (19 – 20%).
Residents of the UK are required to pay tax on world income. So, companies that conduct token sales are required to pay tax. And it does not matter whether the company restricts access to a token sale to residents of the Great Britain or not.
Persons who are not residents (and also LLP) are required to pay only the income tax received from residents of the UK. Such companies are considered to be more “clear” and pay only for providing services to residents of the country.
As for VAT, when exchanging cryptocurrency for fiat, this tax is not charged. Mining is also exempt from VAT, because HMRC does not consider this an economic activity.
Cryptocurrency regulation in the country is present only in relation to taxes. There are no other legal aspects of digital assets in the UK. This may seem attractive for some startups, but when the authorities start to create laws on cryptocurrencies, they may not be the most profitable for the business. This applies both to blockchain projects and to ICO startups. Therefore, you should choose the UK as a jurisdiction for business because of the developed financial and banking sectors.