A recent update to Her Majesty's Revenue and Customs (HMRC) regulations has introduced a digital services tax that will apply to cryptocurrency exchanges operating in the UK.
Crypto exchanges in the UK will now have to pay a 2% digital services tax according to a Telegraph report. The British tax authority, HMRC, does not recognize digital assets as financial instruments and therefore exchanges are not eligible for financial exemptions.
On November 28, the authority listed cryptocurrency exchanges under the Treasury's tech tax. The income tax for digital services was inserted in April 2020, targeting search and social media giants like Facebook and Google.
The latest hit to crypto exchanges is the result of the HMRC's crypto asset rankings, as explained by the regulator:
โThere is a wide variety of crypto assets, each with different characteristics. He said that because cryptocurrencies do not represent commodities, financial contracts or money, it is unlikely that crypto asset exchanges will be able to benefit from the exemption for online financial markets. "
According to CryptoUK, the trading body representing the digital asset sector in Britain, the tax is unfair and is likely to be passed on to investors and traders.
CEO Ian Taylor stated that treating cryptocurrencies differently than other financial instruments, such as stocks or commodities, is detrimental to the cryptocurrency sector.
He added that it is another blow to the industry after the arduous licensing system introduced by the Financial Conduct Authority (FCA) for exchanges. Since January, all UK-based crypto companies have had to comply with AML (anti-money laundering) regulations and register with the FCA.
Regulator imposed a ban on crypto derivatives in January, and in June, the FCA warned consumers against 111 crypto companies I still had to register with him.
Related: UK tax authority to target crypto tax evaders
In April, Cointelegraph reported that HMRC was stepping up its efforts to catch crypto tax evaders and introduced explicit demands on the details of digital asset holdings on self-assessment forms.
Britain's tax authorities reportedly demanded that various crypto asset exchanges deliver details about clients' transactions and holdings in August 2019.
