UK Government is Seeking Public Commentary on DeFi Taxation

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Published: Jul 6, 2022, 10:34 UTC

HMRC is seeking input from investors, professionals and organisations involved in DeFi-related activities

Key Insights:

HMRC is seeking public input on the taxation of crypto-asset loans and staking.
Interested parties have until August 31 this year to submit their responses.
This move is part of a wider plan to make Britain a global hub for crypto-asset technology and investment.

The UK government is seeking public input from investors, professionals and companies on the taxation of decentralized finance (DeFi) activities.

The purpose of this is to ascertain whether administrative burdens and costs could be reduced for taxpayers and whether tax treatment can be better aligned with the underlying economics of the transactions involved.

Public Input

As part of wider plans to make Britain a global hub for crypto-asset technology and investment, Her Majesty’s Revenue and Customs (HMRC) will be gathering evidence on the taxation of crypto-asset loans and staking.

Input has been requested from a broad demographic including financial services companies, trade associations and representative bodies, educational institutions, think tanks and legal, accounting and tax advisory businesses.

Interested parties have until August 31 this year to submit their response via an email provided by HMRC. Once a sufficient amount of evidence has been gathered, the government will publish a summary of responses together with details of its next steps.

Short for decentralized finance, DeFi is an umbrella term referring to variety of financial applications that are built on top of blockchain technology. DeFi has gained traction because it expands the use of blockchain from simple value transfer to more complex financial use cases.

A Global Crypto-asset Hub

In recent months, the UK has gearing up to become a global hub for the crypto industry with a string of innovative new measures announced.

More specifically, HM Treasury, the government’s economic and finance ministry, unveiled a package of measures in April which is set to make the UK a hub for digital payment companies, starting with the regulation of stablecoins.

The move to regulate stablecoins is intended to pave the way for them to be recognized as a form of payment for retail customers in the UK. The government has stated that it will achieve this by taking the necessary steps to bring stablecoins into its regulatory framework and amending existing money and payments legislation.

The Treasury has also confirmed that it will consult on plans later this year to regulate a much wider range of cryptocurrencies in the future. However, it is yet to specify which stablecoins will be regulated.

The Bank of England has welcomed the Treasury’s proposals for bringing stablecoins into the country’s regulatory framework following the release of its striking 40-page report on financial stability relating to crypto-assets.

In addition, the government announced a Crypto-asset Engagement Group which will aim to work more closely with the industry to explore how the country’s tax system can further encourage cryptocurrency adoption, including the establishment of a financial market infrastructure (FMI) ‘sandbox’ to enable firms to experiment and innovate.

Non-fungible token (NFT) enthusiasts can look forward to Royal Mint releasing an NFT this summer, which will be designed to depict the UK’s forward-looking approach to the burgeoning digital artwork space. Royal Mint is the original maker of British coins.

Another standout element of the package of measures is that the government will seek to proactively explore the benefits of distributed ledger technology (DLT) in the UK’s financial markets, going as far as to initiate a research programme focused on the use of DLT for sovereign debt instruments.

About the Author

Mohadesa Najumiauthor

Mohadesa Najumi is a British writer who has worked within crypto, forex, financial technology, and the stock market industry. Mohadesa received her MSc in Political Science and International Relations at the University of Amsterdam.