Some of the most common types of cryptoassets are often referred to as “cryptocurrencies” because, in a nutshell, they can be used to buy things. However, in many settings, they do not meet the definition of money, especially for tax or financial reporting purposes.
In fact, in the UK, at present, they are never considered money, and their use almost always means a tax reporting event has occurred.
One ramification of this is that if a UK taxpayer spends their USDC or their Bitcoin to purchase something, they must consider current UK tax requirements for disposals of property; in other words, those cryptoasset transactions are generally and decidedly, not the same as using money.
Many cryptoassets appear to be similar to or a digital representation of what many of us think of as money because they can be denominated in and backed or linked to currencies, such as the US dollar (USD).
They also may be used as payments or in other typical financial transactions, such as loans and collateral.
This isn’t just the message from the industry, although, we are sometimes its loudest carrier; government officials can also inadvertently convey to retail users, in particular, that stablecoins and other cryptoassets represent the next generation of payment mechanisms, making it sound as though paying with a USDC debit card is always the same as paying with a USD debit card, for example.
As we’ve already noted, for many tax situations, nothing could be further from the truth, in the UK and in other tax jurisdictions globally.
The “C” in USDC really matters in this context. Many factors must be examined to get the tax and accounting treatments correct.
And, contrary to popular belief, the reserve assets don’t affect the tax or financial reporting treatment as much as other factors, such as the terms and conditions on which one is engaging with a given stablecoin.
What this simple observation further means is that policy makers, industry leaders, and users need to have richer conversations about the future of this innovative technology and its use cases–with a new focus on the consequences of (and possible changes to) their tax and financial reporting.
Discussions about the “singleness of money” are currently being had in some global policymaking and industry settings; however, to the extent that these discussions do not include relevant tax and financial reporting consequences, any conclusions will be incomplete, at best, and misleading to everyday consumers, at worst.
CryptoUK, along with the rest of the industry and some policymakers, are rightly excited about the future of blockchain technology and new payment rails that promise greater efficiency, transparency, and speed.
In the UK, new regulatory clarity around cryptoassets, including stablecoins like USDC, is expected soon.
But, if we all focus mainly or solely on creating the much needed and appropriate regulatory frameworks that can enhance this growth and innovation, we can overlook the less than exciting, and sometimes harsh realities of tax law and accounting standards.
CryptoUK has regularly brought this topic forward to policymakers, regulators, standard-setters, in addition to the broader industry, including via regular meetings, in person or virtually, with both HMT and HMRC.
This is an important discussion that must be had in full, and in parallel with the development of regulatory frameworks.
Disconnects between the tax treatment of cryptoasset and fiat currency transactions are widespread, and extend beyond payments to other common financial transactions. In our view, this topic can’t and shouldn’t wait any longer.
Following a call for evidence in 2022, HMRC published a consultation on DeFi lending and staking which intended to create a regime that better aligned to the underlying economic substance of the transactions and to try and reduce the administrative burden on users.
The CryptoUK Tax Working Group responded to those consultation questions and suggested an approach that is fairer and simplifies application for UK taxpayers. Unfortunately, the consultation has yet to bring about any change in the tax legislation and has stalled.
So, in February 2025, we co-signed an important letter authored by Recap that called on the Labour government to level the playing field and move the suggested changes forward to help achieve the goal of equality and fairness as well as opportunity for growth and innovation.
Separately, in our letter to the Chancellor in advance of the August Budget 2024, CryptoUK made these specific observations with respect to the taxation of cryptoassets in the UK:
- The taxation of digital and crypto asset transactions, particularly decentralised finance (DeFi) transactions, has not been aligned with traditional transactions where appropriate;
- CryptoUK has provided detailed advice to HMRC and HMT on the tax treatment of DeFi activity, however progress remains stalled.
- Additionally, capital gains tax changes, including reducing the CGT annual exempt allowance to £3,000 disproportionately affects crypto asset users and investors, burdening them with compliance costs and discouraging innovation.
- Cryptoasset investors and users are not limited to high net worth individuals.
- Rather, our Tax Working Group experts work with everyday retail investors and holders. Further, FCA research (June 2023) suggests that the typical holder or user was younger than 44 years old, and that 63% of holders were holding £500 or less.
- As a result, one can extrapolate that the taxpayer complexity and costs of reporting are possibly less than the revenue-raising benefits; this conclusion will apply to non-GBP denominated stablecoin use as well as to relatively more complex crypto asset transactions.
- Cryptoasset investors and users are not limited to high net worth individuals.
CryptoUK has also made and continues to reiterate these specific UK Tax Policy Recommendations:
- Begin to hold public discussions with industry tax experts on whether the current UK tax treatments are fit for purpose; implement the CryptoUK Tax Working Group’s solutions on the taxation of DeFi transactions.
- Introduce tax-efficient investment vehicle wrappers for UK-based exchanges on select cryptoassets. This provides a means for individuals to invest in cryptoassets in a limited and safe way with UK exchanges, removing excess tax reporting burdens.
- Remove the FCA’s restrictions on retail investors accessing crypto ETFs so they can make use of tax advantaged stocks and shares ISAs and pensions to have exposure to cryptoassets through funds as part of their portfolio.
- Commission a broad and deep apolitical project similar to those of the Law Commission devoted to practical and theoretical research on how best to tax cryptoasset transactions.
Implementing a clear, fair, and proportionate regulatory framework for cryptoassets in the UK is the right priority for the current government.
But, CryptoUK continues to call on the government and all stakeholders to engage in thoughtful discussions on and implementation of equally clear, fair, and proportionate cryptoasset taxation policies.
Both things need to be pursued at the same time, and both are needed to encourage the fullest economic growth and innovation from the industry. Both can’t wait.
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