Advisers must deepen understanding of cryptoassets as client demand increases, industry figures say

Advisory firms must respond to soaring demand and rapidly evolving cryptoassets space by establishing new processes and deepening their understanding of areas such as pricing and taxation, according to market participants.

“Clients need to be assured that their accountant can efficiently analyse their cryptoasset portfolio, so the transactions can be accurately included on tax returns for a fair price”, says Andy Gibbs, head of group technical at TaxAssist Accountants.

“Advisers need to get to grips with these challenges and provide their teams with training, guidance and pricing instructions so the advisory and compliance needs of clients can be met.”

TaxAssist invested early to ensure it had the right processes and staff training in place to support its clients with transactions, says Gibbs, highlighting the challenge of advising on complicated or ill-informed investments.

As cryptoassets evolve, advisers will need to keep abreast of new developments, with guidance and regulation required to keep pace as new products emerge, he adds.

In March 2021, HMRC released the Cryptoasset Manual – its official guidance on cryptoasset earnings, which states that earnings are chargeable to capital gains tax.

HMRC has said that it does not “consider cryptoassets to be currency or money”, reflecting the position previously set out in its 2018 Cryptoasset Taskforce report.

This further complicates the tax landscape, as the Cryptoasset Manual states that “tax treatment of all types of tokens is dependent on the nature and use of the token and not the definition of the token”.

Susan Cattell, head of tax technical policy at The Institute of Chartered Accountants of Scotland (ICAS), argues that as HMRC is applying the existing tax legislation to cryptoassets, advisers will find it “very helpful” to consult the HMRC manual, so that they understand its approach to the taxation of cryptoassets.

However, she acknowledges the complexities that still remain, noting that there is still work to be done on the legislative side.

“HMRC discussed the development of its guidance with stakeholders, including ICAS, and we anticipate ongoing discussions as crypto continues to evolve. It is likely that there will be some adjustments to legislation in future.”

An effective and trusted system 

Elaborating on prospective future adjustments, Joseph Adunse, tax director at Moore Kingston Smith, explains that HMRC could allow a form of rollover relief, which would apply if individuals swapped one type of exchange token for another if no fiat currency (money issued and backed by a government such as pound sterling) is received as part of the transaction.

“Generally, HMRC considers this type of transaction a disposal of the original exchange token, with the value of the new one treated as the consideration for the disposal.

“Many investors won’t immediately sell the new exchange token received, but have potentially triggered a capital gain, on which capital gains tax must be paid.”

Adunse suggests that this could be something which the investor may not know, meaning they are unlikely to declare it on their tax return.

“Having a form of rollover relief making capital gains tax not payable until the new exchange token is sold could simplify matters.”

Cattell echoes this sentiment by commenting on the complexity of UK tax legislation and administration. These systems are difficult to use and do not facilitate compliance, she argues.

“Complexity drives up costs for taxpayers and HMRC and undermines trust in the tax system. Cattell says.

“For businesses, it can divert resources away from running the business into wrestling with tax administration.”

To address these challenges, ICAS has called on the government to act on a number of priority areas, and has requested a comprehensive government statement setting out its policy on tax simplification.

“ICAS has also called on the government to create a strategy to avoid adding to the existing complexity, by building simplification criteria into the process for introducing new primary tax legislation or amending existing legislation,” Cattell adds.

Setting the standard

Last year, HMRC issued nudge letters to those it identified as holding crypto – reminding them that they might need to pay tax on their gains.

Greater clarity is something TaxAssist’s Gibbs believes to be crucial “to ensure the current rules for CGT are consistent with the underlying commercial activity”.

HMRC will need to work with the “accounting profession to maintain the UK’s position as a leading financial centre,” he adds.