cryptocurrency

UK to become a global crypto hub

by Madaline Dunn

The UK government recently announced its plans to make the country a “global hub” for the crypto industry. This announcement comes after the industry criticised the UK for its stringent regulatory approach and a consultation was also conducted by the government in 2021.

However, while this announcement means that the UK will be set on a path to exploit the potential of crypto, some critics are not so sure the move is a good idea, claiming that cryptocurrency is a hotbed for criminal activity.

At The Salary Calculator, we’ll walk you through:

  • How the UK will become a cryptohub
  • What stablecoins are
  • What the move means for the UK

UK to become home to a crypto hub

Back in 2021, the government held a consultation on its approach to cryptoasset regulation, with a particular focus on stablecoins. HM Treasury published a response to this consultation and call for evidence this month, and with that, made a number of announcements, including that the UK is to become a global hub for cryptoasset technology and investment.

Alongside this, the government said that stablecoins will be brought within regulation, and that it would legislate for a ‘financial market infrastructure sandbox’ named ‘CryptoSprint,’ which it said would encourage firms to innovate, and will be overseen by the Financial Conduct Authority (FCA). Likewise, a new body, namely the Cryptoasset Engagement Group, is to form and will see the government work with crypto companies. The government will also create an NFT (non-fungible token) via The Royal Mint.

Commenting on the government’s decision to move into the crypto space, Chancellor Rishi Sunak said that it was part of his ambition to make the UK a “global hub for cryptoasset technology.” He went on to say that the measures will help ensure firms “can invest, innovate and scale up” the country. Sunak also said with this policy change, the government hopes to attract the “businesses of tomorrow.”

This announcement that the UK will become a cryptohub comes shortly after its top financial regulator issued a warning that those investing in crypto “should be prepared to lose all their money.”

What are stablecoins?

The world of crypto is undeniably steeped in confusion, and you’re not alone if, when hearing the word stablecoin, you find yourself scratching your head. Stablecoins are a form of cryptocurrency which are matched against typical currencies, like, for example, the dollar or the pound.

While both stablecoins and other cryptocurrencies use blockchain technology, stablecoins are different from other cryptocurrencies like Bitcoin or Ethereum, which are much more volatile. Stablecoins will only change in value alongside changes in regular currency. This means that unlike Bitcoin, which seemingly crashes on a regular basis, wiping over $1 trillion from market value, it is just as its name says, stable, or as stable as a currency can be. According to the Treasury’s recent announcement, these coins will be regulated the same way the pound is regulated.

Is this a positive development?

While stablecoins, which came into existence back in the mid-2010s, are arguably a safer form of cryptocurrency, they do somewhat contradict the philosophical basis of such currency. Cryptocurrencies like Bitcoin were created to be decentralised, so there was no need for a trusted third party or governing body. As Ronald Mulder explains, “it is based on code, mathematics, cryptography, and game theory.”

Alpay Soytürk, Chief Regulatory Officer at Spectrum Markets, also points out that another problem with stablecoins are their “unknown or insufficient or both – reserves.” For example, in 2021, writing in The Conversation, Jean-Philippe Serbera, a Senior Lecturer at Sheffield Hallam University, highlighted that while stablecoin providers promise they have reserves “worth 100% of the value of their stablecoins,” this is rarely the case. He gave the example of Tether, which holds 75% of its reserves in cash and equivalents, and USDC, which had 61% as of May 2021.

That said, cryptocurrencies, in general, are increasingly gaining popularity. One report, “Demystifying Crypto: Shedding light on the adoption of digital currencies for payments in 2022,” found that more people are adopting cryptocurrencies for online payments. Young people, in particular, are said to be in favour of using crypto payments. In 2021, for example, it was found that 30% of young people were open to these kinds of payments, and a further 23% of online businesses say they are planning on expanding their payment options to include crypto within the next few years.

Aside from using crypto for payments, studies show that more and more Millennials are investing in crypto. A recent survey found that 38% had invested in crypto to diversify their investments. Likewise, a Royal Mint survey found that the same percentage of Gen Z’s are following suit.

Moreover, despite the UK government seemingly welcoming crypto with open arms, it is addressing the concerns of some, such as Bank of England governor Andrew Bailey who warns that such currencies are a “front line” in criminal scams, and an “opportunity for the downright criminal.” According to John Glen, economic secretary to the Treasury, the government is aware of what kind of nefarious opportunities crypto presents but assured naysayers that it “won’t compromise” when it comes to anti-money laundering regulations.

That said, it is perhaps worth noting the other psychological harms associated with crypto trading.​​ According to addiction experts, some young men trading crypto have begun expressing symptoms of and seeking help for problem gambling. Speaking to The Times, Barry Grant, project manager of Extern Problem Gambling, said that those traders who he had encountered displayed “classic gambling addiction progression”. He explained: “You dabble with it. You do something small, you’re having a bit of fun. Maybe you’re doing a bit of research about it. Then, you have a big win.”

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Friday, April 15th, 2022 Economy No Comments

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Cryptocurrency: how to report and pay the right amount of tax

by Admin

Article by GoSimpleTax

In October 2021, HMRC was reportedly planning to send out “nudge letters” to holders of cryptocurrency (also called cryptoassets or just crypto), reminding them to check that they were reporting correctly and paying the required amount of tax.

Obviously, HMRC wants to prevent tax underpayment by the 2.3m people in the UK now believed to have crypto holdings. You may be among them and want to be sure that you’re reporting properly and paying the right amount of tax. Or you could be thinking about investing in cryptocurrency and want to know what your obligations would be regarding reporting and paying tax.

This guide explains:

  • What cryptoassets and cryptocurrency are.
  • When cryptocurrency is subject to Capital Gains Tax.
  • When cryptocurrency is subject to Income Tax.
  • What records you need to keep for tax purposes.
  • How to report crypto gains or income.

What are cryptoassets/cryptocurrency?

HMRC defines cryptocurrency/cryptoassets as: “Cryptographically secured digital representations of value or contractual rights that can be transferred, stored and traded electronically.”

Chances are you’ve heard of Bitcoin, the world’s best-known and most widely held cryptocurrency. More than 60% of UK cryptocurrency investors have Bitcoin holdings, but other examples include Ether, Litecoin and Ripple.

Cryptocurrencies are digital assets, they’re not physical currency. You can’t buy things in the shops with them and they have no inherent value, they’re worth whatever someone is willing to pay for them. A cryptotoken is a denomination of a particular cryptocurrency and they each have different values. As with other assets, cryptocurrency value can go up or down.

Cryptocurrency is bought and sold via secure peer-to-peer online networks or exchanges. According to HMRC, the tax treatment of cryptocurrency depends on its nature and use. Basically, if you’re given crypto or earn income from crypto trading, it can be subject to Income Tax. If you dispose of crypto by selling, exchanging or giving it away, it can be subject to Capital Gains Tax.

When is cryptocurrency subject to Capital Gains Tax?

Obviously, people invest in cryptocurrency hoping that its value will increase over time. If it does, you make a gain, that’s why Capital Gains Tax can be payable if you dispose of cryptocurrency tokens by:

  • selling them
  • exchanging them for other cryptoassets
  • using them to pay for good or services
  • giving them away (unless it’s to your spouse or partner) or
  • donating them to charity.

Your gain is the difference between how much you bought the crypto for (including any transaction fees) and sold it for. If someone gives you cryptocurrency tokens upon which you later need to pay tax, to work out your gain, you must find out their market value when they became yours.

How much Capital Gains Tax is payable on cryptocurrency?

After your total taxable gains go over the Capital Gains Tax tax-free allowance threshold – £12,300 for the 2021-22 tax year – you’ll be taxed as follows:

  • If you’re a basic rate Income Tax payer (ie with taxable earnings of £12,571-£50,270 a year) you’ll pay Capital Gains Tax of 10%, then  20% on gains that take you above £50,270 in taxable earnings.
  • If you’re a higher or additional rate Income Tax payer (ie with taxable earnings of more than £50,270 a year) you’ll pay 20% CGT on your crypto gains over and above the CGT threshold.

To find out whether Capital Gains Tax is payable after selling cryptocurrency, you need to calculate your gain for each transaction.

Some allowable expenses are deductable for Capital Gains Tax, including (according to HMRC):

  • “transaction fees paid before the transaction is added to a blockchain”
  • “advertising for a buyer or seller”
  • “drawing up a contract for the transaction”
  • “making a valuation so you can work out your gain for that transaction”
  • “a proportion of the pooled cost of your tokens when working out your gain”.

Need to know!

  • Capital Gains Tax is obviously not due on crypto losses, but you can use these to reduce other crypto gains and any tax liability, providing you first report them to HMRC. Losses aren’t capped.

How to report and pay Capital Gains Tax on cryptocurrency

To report and pay Capital Gains Tax on cryptocurrency you can either complete a Self Assessment tax return following the end of the tax year or use the real-time Capital Gains Tax service to report and pay straight away.

You must keep separate records for each cryptocurrency transaction detailing:

  • token type
  • disposal date
  • number of tokens disposed of
  • tokens remaining
  • value of the tokens in pound sterling
  • bank statements and wallet addresses
  • pooled costs before and after you disposed of them.

Need to know!

  • HMRC can ask to inspect your cryptocurrency records if it decides to carry out a compliance

When is Income Tax rather than CGT payable on cryptocurrency?

Income Tax and National Insurance contributions (NICs) can be payable on cryptocurrency if your employer gives you them as a non-cash bonus or benefit (this could apply to those who mix employment with self-employment). If you need to pay Income Tax on income from crypto for this or other reasons, you’ll need to register for Self Assessment, if you’re not already registered.

If you occasionally dabble in crypto, you’ll probably only have to pay Capital Gains Tax on disposal. However, if you trade regularly, HMRC will consider you to be a crypto trader and you’ll need to report your income via Self Assessment and pay any Income Tax and National Insurance that’s due.

If you’ve paid Income Tax on crypto, Capital Gains Tax isn’t payable unless you later dispose of your tokens, when CGT will be due on the gain made since you reported for Income Tax.

Many cryptoassets are traded on exchanges that don’t use pounds sterling. If so, the value of any gain or loss must be converted into pounds sterling when you’re completing your Self-Assessment tax return. You’ll need to use supplementary page SA108 to detail crypto capital gains/income and losses claimed within your SA100 tax return.

Need to know!

  • Fail to report cryptocurrency gains or income to HMRC and it can lead to penalties, while you’ll still have to pay tax you owe plus interest.

More information

Visit government website GOV.uk to download HMRC’s Cryptoassets Manual. It sets out the tax rules for both individuals and businesses that invest in cryptocurrency.

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Thursday, February 10th, 2022 Income Tax, Investments, Savings, Stock Market No Comments

Cryptocurrency: Facts, figures and potential dangers

by Madaline Dunn

These days, it feels like talk of cryptocurrency is everywhere. It can be easy to think that cryptocurrency is a straightforward investment, with adverts saying “It’s time to buy” and “Be your own bank.” However, cryptocurrency is a lot more complicated than one might first think, and as with any investment, it’s important to be aware of the risks and dangers.

At The Salary Calculator, we’ll guide you through:

  • What cryptocurrency is
  • What Britcoin is, and what the Bank of England’s consultation means
  • Why you should be wary of cryptocurrency
  • How to keep your wits about you

What is cryptocurrency?

Cryptocurrency is a form of digital currency which is typically decentralised and with which people can use to make transactions and invest. However, what makes it unique is that it is secured by cryptography, meaning that transactions are entirely untraceable, and you don’t need a third party, like a bank or credit card company, to oversee purchases.

The most well-known form of cryptocurrency is Bitcoin which was created back in 2009 and uses peer-to-peer technology, allowing users to buy or sell directly with another user. It uses blockchain technology, which is also known as Distributed Ledger Technology (DLT).

As of 2021, there are reportedly 300 million crypto users across the globe.

What is Britcoin?

The Bank of England has reportedly launched a consultation into Britcoin, Britain’s own digital currency. That said, it would not technically be a cryptocurrency because, unlike Bitcoin, it would be issued by the bank.

As a result, Britcoin would be a Central Bank Digital Currency (CBDC), and, as outlined by the Bank of England, £10 of Britcoin would hold the same value as a £10 note.

Speaking about the consultation, the bank’s deputy governor for financial stability, Jon Cunliffe, said: “The plan to publish a consultation next year on CBDC is a crucial step in our policy development, especially as we further our thinking on the pressing issues at hand.”

“What it will do is provide a platform for interested parties and relevant groups to engage with the key questions on the merits of CBDC, and whether the public sector should advance to a development phase.”

England isn’t the first place to be exploring the possibilities of this kind of digital currency; the Bahamas has the Sand Dollar, while China launched pilots of CBDC in 2020.

According to the Bank of England, there will be no launch before 2025.

Why you should be wary of cryptocurrency

There are a number of reasons why you should be wary of cryptocurrency. One key aspect of cryptocurrency is that it is incredibly volatile. While, on the 10th November, Bitcoin reached an all-time high reaching above $68,000, on 16th November, there was a market-wide crash, whereby the overall crypto market dropped by over $200 billion to approximately $2.6 trillion.

It’s also important to note that cryptocurrencies are unregulated, which means that there’s no watchdog or regulator to oversee the security of transactions and guarantee safety and security – which is another issue.

Although cryptocurrency is decentralised, meaning you own your own money, crypto exchanges and hot wallets (cryptocurrency wallets) can be hacked, and hacks happen all the time. This is why, when trading, it’s important to have a ‘cold wallet,’ too, which can’t be accessed through the internet.

Cryptocurrency ads and keeping your wits about you

You may have found yourself noticing more and more advertisements for cryptocurrency. With these advertisements becoming more mainstream, appearing on TfL buses and trains, one may believe these are regulated, conventional and safe forms of investment.

It’s for this exact reason that the Advertising Standards Authority (ASA) banned advertisement from crypto exchange service, Luno, which told people it was “time to buy.” Explaining the reasoning behind its decision, the ASA said: “We understood that bitcoin investment was complex, volatile, and could expose investors to losses and considered that stood in contrast to the impression given by the ad, that investment was simple and conventional.”

Adding: “We concluded that the ad irresponsibly suggested that engaging in bitcoin investment through Luno was straightforward and easy, particularly given that the audience it addressed.”

Now, further appeals for bans of crypto ads have been made, especially in relation to TfL posters advertising Floki Inu, another crypto product. Advertisements for this product ran for three weeks, and TfL has admitted that they do not know who is behind the funding of the posters.

If you decide you want to take things further with cryptocurrency, here are some tips on how to keep safe:

  • Research, research, and research some more. Keep up-to-date with cryptocurrency exchanges, and even reach out to experienced investors for guidance and advice.
  • Diversify. Putting all your money into cryptocurrency, especially considering how volatile it is, is potentially very dangerous. Make sure you don’t get caught out.
  • Look into different cryptocurrency wallets to ensure your investments and purchases are safe or as safe as they can be.

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Tuesday, November 23rd, 2021 Economy, Investments No Comments

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