As published on cryptodaily.co.uk, Wednesday 6 July, 2022.
Her Majesty’s Revenue and Customs agency (HMRC) has opened an 8-week tax consultation period for collecting evidence on crypto taxes, and specifically on DeFi activities.
HMRC is asking for views on the taxation of cryptoasset loans and staking within the context of decentralised finance (DeFi). The government wants to know how it can reduce burdens and costs to taxpayers.
The chancellor of the exchequer, Rishi Sunak, announced plans earlier this year to make the UK a global hub for cryptocurrency. However, with much opposition to the idea, and a general slowness to act, the project has somewhat stalled.
The current opening of a consultation on loaning and staking in the area of DeFi is quite refreshing therefore, and could be taken as a positive sign that the UK authorities really are trying to make such things as staking, less of a burden taxwise.
The government wants to collect the evidence submitted and use it to reduce frictions in the current tax laws pertaining to lending and staking. All other DeFi activities are not covered in the scope of this consultation.
There are 10 questions altogether in the document, and they range from seeking to understand how many lending/staking platforms are based in the UK, and how many UK citizens use them. It asks whether the UK is an attractive place to do this kind of business, and whether respondents would like to see a change to the current rules.
It posits the possibility of modelling the new rules on the current ones that apply to Repo or Stock Lending, but also seeks alternatives rules that might be in force in other jurisdictions, and ends with the question of whether the government can be confident that any proposed new rules will not discriminate in favour of DeFi users over alternatives.
Whether or not it is in the scope of this consultation, there will be many UK taxpayers who invested in various staking and lending platforms across the cryptocurrency sector. At the height of the bull market in Q4 of last year many would have had sums of money on staking platforms such as Terra Luna, and in lending platforms such as Celsius.
Since that time, the Terra Luna platform and its whole ecosystem have practically gone to zero, while crypto lenders like Celsius have frozen investor assets due to liquidity issues, and it’s not known when investors will get their assets back, and how much of them will still be left.
Large gains at the end of last year would have turned into large losses this year at a time when tax returns will need to be made, and many will not be able to pay the huge tax bills given the losses they will have subsequently made.
Some are in the position where they did not take any profits out last year, and would not have benefited from the gains at all, and yet would still be faced with a huge tax bill that many will be unable to pay.