The UK’s taxing company updated its guidance on digital assets which has been met with backlash.
On Wednesday, February 2, The United Kingdom’s taxing department, Her Majesty’s Revenue and Customs (HMRC), published updated guidance on the treatment of crypto and digital assets. The guidance has received negative backlash, especially due to its potential impact on decentralized finance (DeFi).
The Cryptoassets Manual, published on the UK Government website, contains a separate section dedicated to DeFi lending and staking regulations in the UK. It determines whether returns or rewards from DeFi services can be deemed as either capital or revenue when taxed.
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The relevant factors for consideration when determining whether an individual has a trade involving the making of DeFi loans would be similar to those applied to transactions in shares, securities and other financial products[.]
Given the constantly changing technological landscape of DeFi, as well as the changes in the lending and staking of tokens via DeFi, HMRC set out guiding principles rather than “all the circumstances in which a lender/liquidity provider earns a return from their activities and the nature of that return.”
According to the guidance, the returns via staking or lending DeFi assets will be treated as property for tax purposes. Since digital assets aren’t considered currencies in the UK, these assets can’t be treated as interest.
The updated guidance was met with backlash from the crypto and DeFi community, as the outline could cause issues for stakers. It suggests that when the holders stake their tokens, the ownership is transferred to the platform, which can make declaring taxes more complicated.
CryptoUK, representatives of the nation’s digital asset sector, posted a response to the new guidance, stating that the new regulations would “create friction for crypto investors” and cause “tax compliance confusion.” Executive director of CryptoUK Ian Taylor stated:
This treatment of crypto lending and staking creates an unnecessary burden for any crypto investor who will now be required to include details of any lent assets <...> on their tax returns and will have to carry out additional reporting which could require individuals to report hundreds or even thousands of transactions.
Taylor went on to say that this move appeared to be “out of step with the Government’s stated aim for the UK to be open and attractive as a destination for investment and innovation post Brexit.”
Board member of CryptoUK Teana Baker-Taylor joined the conversation, asking why there was no public consultation on the guidance.
BitDegree reported last week that the UK Member of Parliament, Matt Hancock, expressed support for FinTech and crypto innovations while speaking to the House of Commons.
