HMRC, the UK tax authority, has published its first detailed legislation covering individuals’ crypto tax liabilities.

HM Revenue & Customs (HMRC) has published its first detailed tax legislation covering privately held cryptocurrencies.

“Cryptoassets for Individuals” as it is titled, aims to clarify exactly what tax obligations private crypto investors and traders have, and what specifics they will be required to report to the UK tax authorities.

The paper clarifies that, depending on the type of transaction, individuals will be liable to pay either Income Tax or Capital Gains tax. If a cryptocurrency payment is received from an employer, the employee will also be liable to pay National Insurance contributions (social security).

HMRC does acknowledge that despite its attempts to provide specific information, each case will be assessed individually and its “views may evolve further as the sector develops”. Indeed, this effort to clarify tax liabilities for cryptos stands in stark contrast to the complete inertia displayed by most other countries’ authorities regarding digital assets.

Rather alarmingly though, it seems individuals will still be liable for tax on cryptocurrency that is lost through hacks, theft or loss. HMRC are asserting that in such situations the victim “still owns the asset and has a right to recover them” – meaning Capital Gains Tax would still be owed until it was absolutely proven that the assets were lost forever.

It doesn’t take a very big stretch of the imagination to see how this policy could lead to a few issues, but its also tough to see a way around it given that they need to protect themselves from potentially fraudulent claims of lost assets.

In another interesting point, the paper also says that:

“Those who pay for and receive cryptoassets, may be able to make a negligible value claim to HMRC if they turn out to be worthless.”

Of course, as long as individuals can own and trade cryptocurrencies relatively anonymously, HMRC will either have to rely on everyone being very honest, or spend inordinate, and frankly impossible, amounts of time and money on investigating pretty much everyone, forever. And, that makes me think of an article I wrote just a couple of days ago (see – A WARNING FROM A CRYPTO VISIONARY: TIM MAY).

The full HMRC paper can be read here.