In October 2022, the media reported that UK legislators voted to recognize crypto assets as regulated financial instruments. Despite this, the new rules cannot come into force quickly. The draft law will be debated in the House of Lords, the upper house of parliament, before all changes are passed and King Charles III approves the regulation. Let’s look at the current situation with cryptocurrency regulation in the UK.
Features of cryptocurrency control in the UK
Adjustments in the digital money industry are ripe in the UK after Brexit. Although in 2020, the state recognized crypto assets as one of the property types, so far, Britain has not adopted specific laws on digital money.
Bank of England specialists expressed that the cryptocurrency does not have traditional definitional properties and does not pose problems to the stable operation of the economic system. If you are interested in is Bitcoin legal in the UK, then yes, ordinary users can freely make operations with cybercash.
As the legal implications, rules, and status of digital assets may change depending on their nature, type, and usage patterns, the Financial Conduct Authority (FCA) and the Bank of England have issued several warnings and guidance regarding crypto operations in the UK. Such notices are related to the lack of lawful and monetary protection, the status of cybercash as a store of value, and the risks of speculative trading.
Securities tokens (units of account that have specific properties and confer rights and duties similar to connected investments, e.g., shares or debentures) are the only digital finance under the monitoring of the FCA.
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Taxes on crypto assets in the UK
Because cryptocurrency is legal in the UK, HM Revenue & Customs (HMRC) imposes taxes on digital assets, including Bitcoin and Ethereum. In addition, income tax may be applied to the income of persons engaged in trade. HMRC has implemented two separate systems to interact with individuals and businesses that trade crypto assets.
The first data on the taxation of digital assets appeared in 2014. The government agency updated then its first tax guide. The next version of the policy document, which appeared in 2018, deals with three groups of crypto assets:
- utility tokens
- security tokens
- exchange tokens
According to HMRC, tax rates apply only to exchange tokens. In November 2019, HM Revenue & Customs presented analytical materials, where experts outlined their vision of taxation operations for companies that interact with exchange tokens. In December, this UK government department released a software product with updated advice on Bitcoin taxes for persons.
In the future, HMRC plans to implement a taxation system for utility and security tokens, giving some arguments in favor of such a decision:
- The worth of exchange tokens is associated with the possibility of their use as investment tools.
- Security tokens can generate a profit for the owner, e.g., as company dividends.
- Utility tokens provide access to products or services on the platform.
If your employer pays wages in crypto tokens, they can be classified as efficiently convertible assets so that you may be liable for income tax and insurance payments.
In April 2022, the government stated it would consider options to increase the competitiveness of the UK tax algorithms to stimulate the development of the cyber cash industry.
Are cryptocurrency firms regulated in the UK?
One area where strict regulations apply is purchasing or trading digital assets through an exchange. The Financial Conduct Authority (FCA) is the leading financial regulatory authority in the UK. The agency monitors the performance of economic organizations that offer services to clients and ensures the integrity of the public financial market.
Today, the FCA provides cryptocurrency regulation UK to ensure companies that deal in digital assets take all necessary measures for anti-money laundering (AML) and terrorist financing. If an organization has registered in the FCA, it maintains the required level of AML control and conducts thorough due diligence on customers before working with them.
The FCA has previously taken action against cryptocurrency exchanges. It banned Binance from operating in the UK in 2021 due to concerns about the financial institution’s structure.
The British Advertising Standards Agency (ASA) also provides cryptocurrency regulation; it controls promoting digital currency among users through constantly monitoring social networks, websites, commercials, and announcements.
Currently, AML standards for crypto assets vary widely across jurisdictions, with some territories still not implementing the international rules created by the Financial Action Task Force (FATF).
It is not yet clear if Bitcoin and stablecoins will ever become the primary medium of exchange in the UK. Specialists must solve the problems associated with significant capacities and massive electricity consumption during mining. In addition, money laundering risks must be minimized and monitored in most jurisdictions for digital money technology to be as secure as bank transfers. Сryptocurrency regulation will be strengthened shortly.