How cryptoassets are treated for business tax purposes

11 December 2019

Cryptoassets (aka cryptocurrencies) are a relatively new type of asset which saw significant popularity following exponential increases in the value of bitcoin and other ‘cryptocurrencies’ – see BDO’s introduction to cryptocurrencies and introduction to cryptoassets and ICOs.

Continued development of the underlying technology and the applicable uses of cryptoassets has meant that the sector has been rapidly developing and, therefore, the tax treatment of cryptoassets has also had to develop to ensure the UK’s tax system can account for changes in the sector.

Initially, the lack of formal guidance on cryptoassets led to a number of common myths about their tax treatment. However, in guidance for individuals in 2018, HMRC had stated in that it did not consider cryptoassets to be currency or money; instead, it regards them as three distinct types of cryptoasset: exchange tokens, utility tokens and security tokens.  

UK tax policy on exchange tokens

On 1 November 2019, HMRC published a policy paper setting out its position on taxing transactions undertaken by companies and other businesses that involve ‘exchange tokens’. Exchange tokens are defined as cryptoassets intended to be used as a method of payment, encompassing ‘cryptocurrencies’ like bitcoin. The value of exchange tokens is based on their use as a means of exchange or investment. Unlike utility or security tokens, they do not provide any rights or access to goods or services. Unfortunately, the policy paper does not offer guidance on the tax treatment of utility or security tokens and initial coin offerings.

Reporting transactions

Many companies now accept cryptocurrencies (exchange tokens) as payment for goods or services, or use them to buy goods and services: the value of the exchange tokens at the transaction date must be established to calculate the selling price for the good or service. The calculation of a company’s taxable profits must be undertaken in the company’s functional currency, ie generally pound sterling for UK-based companies. As exchange tokens may be traded on exchanges that do not use the functional currency of the company, a method of converting the value of any transaction, at the transaction date, will need to be established for the purposes of completing a tax return. Reasonable care must be taken to ensure that the methodology used to convert transactions involving exchange tokens is appropriate and consistent, and HMRC expects companies to document and maintain records of the valuation methodology they have used.

Where a company’s functional currency is not sterling, the transactions will be converted to the functional currency using an appropriate rate at the time of each transaction, with necessary steps being taken at the end of the accounting period to complete the tax return in pound sterling.

Corporation tax

When calculating a company’s corporation tax liability for an accounting period, the company must take into account all of the exchange token transactions it has carried out. It should be noted that, because HMRC does not consider exchange tokens to be a form of money or currency, corporation tax legislation such as the foreign currency rules and Disregard Regulations do not apply to exchange tokens.

As with other types of business, it is important to question whether transactions involving cryptoasset exchange tokens would themselves constitute the activities of a trade (ie trading in the cryptoasset with a view to a profit). Some of the key factors to be considered are: the degree and frequency of activity, the level of organisation, the risk, and the commerciality. If it is concluded that a business is engaged in a trade, the receipts and expenses will form part of the calculation of the trading profits.

If a transaction involving cryptoasset exchange tokens is undertaken as part of an existing trade, the profits on the transaction will be included as a revenue receipt in respect of that trade. If the activities do not constitute a trade, then other areas of legislation such as chargeable gains, loan relationship and intangible fixed asset rules should be considered to determine how the transactions are treated for corporation tax.

Loan relationships regime

HMRC’s view is that the acquisition of cryptoasset exchange tokens generally does not involve entering into a loan relationship. This is because HMRC does not consider cryptoasset exchange tokens to be money and, as there is typically no counterparty, it does not constitute a debt (therefore, they do not typically create a loan relationship). By extension, if cryptoasset exchange tokens are loaned, it is unlikely that this would constitute a loan relationship. However, if cryptoasset exchange tokens have been provided as collateral security for an ordinary loan (of money), a loan relationship exists and the loan relationship rules will apply.

Intangible fixed asset regime

If the cryptoasset exchange tokens fall within the intangible fixed assets rules, they will be treated in the same way as other intangible assets; this treatment takes precedence over the chargeable gains rules. In order to fall within the intangible fixed asset rules, the token must be both an ‘intangible asset’ for accounting purposes and an ‘intangible fixed asset’.

Cryptoasset exchange tokens simply held by a company (eg in an account to support its ongoing trading or to reward employees) will not meet the definition of an ‘intangible fixed asset’. It is perhaps more likely that ‘security’ or ‘utility’ tokens will meet the tests to qualify as an intangible fixed asset where they have been created by a business to facilitate sales of goods or services or provide a reward to investors or employees. Sadly, HMRC’s guidance does not comment on this. 

Investments (chargeable gains)

Where transactions involving cryptoasset exchange tokens are not considered part of a trade or within the loan relationship or intangible fixed asset regimes, the exchange tokens involved will be treated as ‘chargeable assets’ for Capital Gains Tax and Corporation Tax purposes, provided they are capable of being owned and have a value that can be realised.

In these circumstance, gains or losses are calculated on a disposal of cryptoasset exchange tokens: for example, where tokens are sold for money or used to pay for goods or services. If a company gives away cryptoasset exchange tokens to a person, other than a company within the same capital gains group, the disposal is deemed to take place at market value.

Certain allowable costs may be deducted when calculating the gain or loss on disposal, including the consideration originally paid for the asset and the valuation costs incurred to be able to calculate gains or losses. It is HMRC’s view that the pooling provisions which apply to assets such as shares and securities also apply to cryptoasset exchange tokens.


VAT is due in the normal way on any goods or services sold in exchange for cryptoasset exchange tokens. The value of the supply of goods or services on which VAT is due will be the pound sterling value of the cryptoasset exchange tokens at the point the transaction takes place.

However, where cryptoasset exchange tokens are received by ‘miners’ for their exchange token mining activities, this is generally outside the scope of VAT. This is because the activity does not constitute an economic activity for VAT purposes (because there is an insufficient link between any services provided and any consideration) and there is no customer for the mining service.

Stamp Duty and Stamp Duty Reserve Tax

HMRC’s current view is that transfers of cryptoasset exchange tokens do not fall within the scope of Stamp Duty or Stamp Duty Reserve Tax, as they do not meet the definition of ‘stock or marketable securities’ or ‘chargeable securities’ respectively. However, HMRC will consider the characteristics and nature of the cryptoassets on a case-by-case basis to ensure these definitions are not met: for example, care should be taken for transactions involving security tokens, as some might be regarded as meeting the chargeable securities test.

Where exchange tokens are given as consideration to purchase ‘stock or marketable securities’ and/or ‘chargeable securities’, they would be considered chargeable consideration for Stamp Duty Reserve Tax purposes, as it is considered money’s worth, but may not be considered as such for Stamp Duty purposes, unless it is considered a debt.


HMRC’s policy paper provides a good foundation to assist those businesses transacting with exchange tokens to understand the tax implications of using such cryptoassets. However, as the sector develops, it is clear that the tax treatments set out in this policy paper will not be suited to every scenario, so careful consideration of the tax consequences should be given to any transactions involving cryptoassets.

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Read more on cryptocurrencies and cryptoassets:

Rewarding employees with cryptoassets
Cryptocurrencies: to be or not to be a currency? - that is the question
Cryptoassets FCA consultation - the outlook for 2019
Introduction to cryptocurrencies
Introduction to Crypto Assets and ICOs