Blockchain technology and cryptocurrencies have become more apparent than ever in the area of digitalization and digitization. Despite the fact that cryptocurrency is well-known throughout the world, each country has its own stance on whether it is lawful. This article examines several facets of this topic while addressing the query of whether cryptocurrencies are permitted in the UK.
Source: https://bbcincorp.com/offshore/articles/is-cryptocurrency-legal-in-uk
Legality of cryptocurrencies in the UK
While cryptocurrencies are prohibited in many nations, including China, they are entirely legal in the UK. In order to set the standard and educate the public about the risks and how to avoid them, the UK government adopts a regulatory approach.
Although the phrase "cryptocurrency" contains the word "currency," it may not be regarded as one in the United Kingdom. Cryptocurrency is not recognized by HMRC as official currencies like the sterling pound and is instead categorised as digital assets, or "crypto assets," which may be liable to capital gains tax or income tax depending on the circumstances.
Exchanges for cryptocurrencies
Although they are permitted in the UK, bitcoin exchanges must meet a number of conditions.
The 5th and 6th Anti-Money Laundering Directives' criteria for cryptocurrency regulation had already been incorporated into UK domestic legislation. According to those directives, all UK crypto-asset enterprises that adhere to one of the following requirements must register with the Financial Conduct Authority (FCA) as of January 2021:
have a presence and/or advertise products in the UK
provide services to customers who reside in the UK
More importantly, these organizations must adhere to the Risk Management Policies as well as the AML/Combating the Financing of Terrorism (CFT) reporting requirements and client protection obligations.
The Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 must also be complied with, according to FCA guidelines.
Retail bitcoin derivatives were prohibited by the FCA in January 2021 in order to shield customers from market volatility.
How can I legally exchange cryptocurrency in the UK?
As previously indicated, in order to exchange cryptocurrency, registration must receive FCA permission. However, there are various tasks that must be completed before submitting your application to register for the crypto exchange license, including:
Organize a legal entity
keep your registered office address up to date
Register for taxes
Create a bank account
If this sounds foreign to you, you might want to think about working with a dependable partner or consultant, like BBCIncorp.
You can take these steps to register a license for a cryptocurrency exchange:
Access the FCA website by logging in.
Complete an online application form
Pay the registration fee
It can be necessary for you to include details in the application about important stakeholders in your firm, such as shareholders, beneficial owners, corporate directors, etc. The FCA will assess and accept your request after you submit it, however this process could take up to 3 months.
Cryptocurrency tax regulations
Capital gains tax
The most typical source of income for a cryptocurrency investor is a capital gain.
HMRC calculates the gain on bitcoin sales using the following formula:
Total sales revenue less cost basis (fair market value at the time of acquisition) plus fees
The gain is subsequently subject to capital gains tax, according to your tax bracket. In the UK, each cryptocurrency investor is entitled to a capital gains allowance of £12,300 per year, which may be applied to cryptocurrency holdings.
HMRC also acknowledges that additional potential sources of capital gains include
Trading non-fungible tokens (NFTs)
selling airdropped tokens
Trading the crypto-liquidity pool token
income tax
Income tax is a significantly new tax law that HMRC has adopted for cryptocurrency assets. Additionally, it's a somewhat novel idea in the cryptosphere.
Staking is a mechanism that uses liquidity provided by validators to protect each transaction on the blockchain. When a service is rendered for crypto assets, even the smallest one, HMRC presumes that income tax is due. Therefore, staked revenue needs to be taxed at the appropriate tax rate.
Additional sources of cryptocurrency revenue
Farming for returns
Tokens dropped in the air
cryptocurrency mining
Forks, nodes, and lending
Watch out for deceptive advertisements.
The UK government tightened the regulations on cryptocurrency asset ads in January 2022 to protect customers from false claims.
A few highlights from the upgrades are as follows:
The UK government intends to counter deceptive cryptocurrency asset advertisements
Legislation will be implemented to protect the fairness and transparency of cryptocurrency advertising.
New regulations will enhance consumer protection while promoting innovation.
Although the government has tightened the regulations on cryptocurrency advertisements, we nonetheless advise people to exercise caution to prevent receiving false information or falling victim to scam.
Regulation of cryptocurrencies in the UK in the future
There has been continued financial unrest related to the current scenario, which is being driven by Russia's invasion of Ukraine. Because of this, it appears that the UK government will continue to place a high priority on regulating crypto service providers.
Additionally, the UK government announced plans and actions in April 2022 that will result in stablecoins being accepted as a legitimate form of payment as part of broader efforts to make the UK a global hub for technology and investment in crypto assets.
Conclusion
Even if it is legal to use cryptocurrencies in the UK, there are still several issues that should be taken into account when engaging in activities involving digital assets.
Businesses should be aware of the legal situation given that it is currently not recognized as an official currency in order to modify the payment options they offer to customers and the way they conduct business.
Reach out to BBCIncorp at service@bbcincorp.com if you'd want a consultant to help you along the way and ensure that everything is legal and compliant in the realm of cryptocurrencies. We'll be in touch.
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