The rise of bitcoin and blockchain in the area of digitalization and digitization is more apparent than ever. Although bitcoin is well-known throughout the world, each country has its own stance on whether it is legal. The legality of cryptocurrencies in the UK is a topic that is covered in this article along with other facets of the topic.
UK cryptocurrency laws and regulations
While cryptocurrencies are prohibited in a number of nations, including China, they are wholly legal in the UK. In order to define the standard and educate the public about the risks and how to avoid them, the UK government uses regulation.
Although the word "currency" appears in the name "cryptocurrency," it may not be regarded as such in the United Kingdom. Cryptocurrency is not recognized by HMRC as official currencies like the sterling pound and is instead categorised as digital assets, or "crypto assets," which may be liable to capital gains tax or income tax, depending on the circumstances.
Exchanging cryptocurrencies
Although they are permitted in the UK, bitcoin exchanges must meet a few conditions.
The 5th and 6th Anti-Money Laundering Directives' criteria for cryptocurrency regulation were already incorporated into UK domestic legislation. According to those directives, all UK crypto-asset enterprises that meet one of the following criteria must register with the Financial Conduct Authority (FCA) as of January 2021:
a presence and/or product marketing in the UK
provide services to clientele who reside in the UK
More importantly, these organizations must adhere to the Risk Management Policies as well as the reporting requirements for AML/Combating the Financing of Terrorism (CFT) and customer protection.
According to FCA guidance, these organizations must also abide by the 2017 Money Laundering, Terrorist Financing, and Transfer of Funds Regulations.
Retail bitcoin derivatives were outlawed by the FCA in January 2021 in order to shield customers from market volatility.
How can cryptocurrency be traded lawfully in the UK?
As previously noted, in order to exchange cryptocurrency, registration requests must receive FCA clearance. However, there are several tasks that must be completed before submitting your application to register for the crypto exchange license, such as:
Create a legal organization
keep your registered office address current.
Register as a taxpayer
Establish a bank account
If this sounds foreign to you, you might want to think about working with a dependable partner or consultant like BBCIncorp.
You can follow these procedures in order to register a license for a cryptocurrency exchange:
Access the FCA website.
Complete a form for applying online.
pay the enrollment cost
You can be asked to include details in your application about important stakeholders in your firm, such as shareholders, beneficial owners, corporate directors, etc. It could take up to 3 months for FCA to consider and accept your request after you've submitted it.
legislation governing cryptocurrency
tax on capital gains
The most typical source of income for cryptocurrency investors is a capital gain
HMRC calculates the gain on bitcoin sold using the following formula:
Cost basis (fair market value at the time of purchase) less fees equals total sales revenue.
The gain is subsequently subject to capital gains tax, depending on your tax level. In the UK, each cryptocurrency investor is entitled to a capital gains allowance of £12,300 per year, which can be applied to cryptocurrency holdings.
HMRC also acknowledges that additional potential sources of capital gains include:
A non-fungible token exchange (NFTs)
selling tokens dropped by air
Crypto-liquidity pool token trading
revenue tax
Income tax is a significantly new tax legislation that HMRC has adopted for crypto assets. It's also a somewhat novel idea in the cryptosphere.
Staking is a protocol that uses liquidity provided by validators to safeguard each transaction on the blockchain. When a service is rendered for crypto assets, even the smallest one, HMRC thinks that income tax is due. As a result, staking revenue needs to be taxed at the appropriate tax rate.
Other sources of cryptocurrency income
Produce farming
Aerial tokens
mining cryptocurrencies
lending, nodes, and forks
Watch out for deceptive advertising
The UK government tightened the regulations on crypto asset ads in January 2022 to protect customers from false claims.
Highlights from the updates include:
The UK government intends to handle false cryptocurrency asset advertisements
Legislation will be implemented to ensure fairness and openness in cryptocurrency promotions.
New regulations will enhance consumer protection and promote innovation.
Although the government has tightened the regulations on cryptocurrency advertisements, we nonetheless advise people to exercise caution to prevent receiving any false information or falling victim to scam.
The future of UK cryptocurrency regulation
Financial unrest has persisted as a result of the current scenario, which is being driven by Russia's invasion of Ukraine. Because of this, it appears that the UK government will continue to place a high priority on regulating bitcoin service providers.
Additionally, the UK government announced plans and actions in April 2022 that will result in stablecoins being accepted as a legitimate form of payment. These plans are a part of larger efforts to make the UK a centre for technology and investment in crypto assets.
Conclusion
Although it is legal to use cryptocurrencies in the UK, there are still several issues that should be taken into account when engaging in activities involving digital assets.
Businesses should be aware of the legal situation given that it is currently not recognized as an official currency in order to adjust the payment options they offer to customers and the way they conduct business.
Reach out to BBCIncorp at service@bbcincorp.com if you'd like a consultant to walk you through the process and ensure that everything is legal and compliant in the realm of cryptocurrencies. We'll be in touch.
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