Accountants For Cryptocurrency

How To Choose Specialists Accountants For Cryptocurrency.

If you are looking for a speciliast and experienced accountant that is able to specialize in a particular field, such as cryptocurrency accountant in London, then there are several key points that need to be fully considered prior to using the services of the right person.

Get a Quote Now View Prices

The nature of the asset

A recent article in the Financial Times1 suggested

“Cryptos may be based on nothingness, but it doesn’t necessarily follow that they’re worthless. In fact, the value they provide might depend upon them being linked to nothing, rather than something. This is a kind of security that crops up very rarely, like precious metals, or great works of art.”

The exponential growth of transactions in bitcoins and other cryptocurrencies has inevitably caused significant questions about how these activities should be treated in financial statements. Just think about the values involved. If we take a market capitalisation of bitcoin in February 2019 as circa $69.61 billion, the cumulative market capitalisation value of all 11 cryptocurrencies referred to in these notes is circa $105.53 billion, with bitcoin accounting for 66% of this market value.

In July 2018, the International Accounting Standards Board considered

  •   How an entity might apply existing IFRS standards in accounting for cryptocurrencies
  •   Whether new standards are required
  •   Whether this should this be a priority for the IASBThe answers to these considerations were clear
  •   Not sure how we should apply current standards, as a cryptocurrencydoes not directly meet existing definitions of a financial asset
  •   Yes, standards are required
  •   Yes, this should be a priority, we can expect more regulation to be issued around this whole area of cryptocurrencies, but priority in these circles does not mean quick, so we need to find a solution in the meanwhile.

There are various options available to us within our current classification of assets, as discussed briefly in the module screens.

Cash

IAS 7.6 suggests “cash comprises cash on hand and demand deposits”

IAS 32 suggests “cash is a financial asset because it represents the medium of exchange”
As cryptocurrencies are not supported by any central bank the regulators believe that they cannot be classified as cash or cash-equivalent.

Non-cash

IAS 32 and IFRS 9 suggest that the holder of a non-cash financial asset has the contractual right to receive cash or another financial asset in exchange for their holding.
Again, generically, cryptocurrencies cannot be deemed to have this attribute.

Investment

IAS 40.5 defines an investment as being something held either for “use in the production of goods or services” or for “sale in the ordinary course of business”
This might apply to some cryptocurrencies, in some instances, but not from a generic financial reporting perspective.

Intangible

IAS 38.8 defines an intangible asset as “an identifiable non-monetary asset without physical substance.
This would seem to be the most likely definition that could be aligned to the majority of cryptocurrencies in the majority of situations.

This would then raise the question of how to arrive at the correct balance sheet value – cost or fair value, and how the ‘asset’ should be impaired. Given the already referred to variability of the cryptocurrency markets this will always prove an interesting challenge for preparers and auditors.

Inventory

One final option might be to account for a cryptocurrency holding as inventory, recognising the lower of cost or net realisable value, but this will raise a whole raft of other considerations.

Suffice to say that there is, as yet, no firm guidance or conclusions from the IASB. As with much of todays financial reporting, preparers and auditors need to justify their treatment of individual instances and be prepared to defend their underlying judgements.

The future

If this brief module has shown you nothing else, it will have made you realise that the understanding of cryptocurrencies, and the associated blockchain technology which underpins their existence is a complex matter, and not for the faint-hearted. The currencies themselves and the technology are increasingly permeating our financial world so, as accountants, we need to have at least some understanding of what we are dealing with, and, as in so many cases, what questions we ought to be asking.

Here are several tips to consider for choosing a reliable accountant in London:

Reviews

During your interviews, it is a good idea to have a list of questions ready for the accountants. The most important, and often overlooked, the question is whether they are a licensed CPA. Many people simply assume that all accountants are licensed. You don’t want to hire someone who does accounting on the side and never got around to being licensed. Find out how many accountants work with him at his firm. Having a large number could save you money because you could use the cheaper ones for less important issues. You also have to make sure the firm is used to dealing with a business of your size when choosing an accountant.

Get a Quote Now

cryptocurrency

Experience

When looking for the cryptocurrency accountants it is also good to consider how long they have been in service. A contractor accountant with many years of experience has the capacity to do a good job since he/she has done the same thing over and over again. An accountant with a good experience know the various challenges likely to be encountered and how to deal with them. On the other hand, a contractor with little or no experience at all is most likely not going to give you the desired result.

Qualification

In the process of searching for the right accountant, you will often come across a range of accountants offering a range of services. It is often the case that cryptocurrency accountancy requirements are often unique and specific. It is therefore vital to choose a specialized accountant that is qualified in this particular sector. Many of the larger accountancy practices or high street firms are more likely to focus on dealing with large corporations, personal tax planning, or small businesses which might not be suitable for your specific needs. In an initial interview with an accountant, you should ask whether they are specialized in dealing with matters that relate to cryptocurrency and that they are fully qualified on such requirements. This is a key consideration and will often drop many of the high street based accountancy firms.

Reliability 

Oftentimes, when people are choosing an accountant, the individual’s personality is forgotten. You have to remember that you will be working closely with this person, so make sure you choose someone you and the rest of your employees can trust. Convenience also should play a part in your selection. You may have found the perfect accountant. The only problem is that his firm is located hours away from your company. He no longer is the perfect accountant. Choose someone in your area because these are the people you know well and can trust.  The above are some of the things to look at when choosing an accountants for cryptocurrency.

Purpose of this Brief

This brief sets out HM Revenue & Customs (HMRC) position on the tax treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies, specifically for Value Added Tax (VAT), Corporation Tax (CT), Income Tax (IT) and Capital Gains Tax (CGT).

Readership

Anyone making charges or otherwise receiving income, in whatever form, from activities involving Bitcoin (or other cryptocurrencies), including:

Bitcoin miners

Bitcoin traders

Bitcoin exchanges

Bitcoin payment processers

Other Bitcoin service providers

Background

Bitcoin is seen as the worldʼs first decentralised digital currency, otherwise known as a “cryptocurrency”. The advent of cryptocurrencies such as Bitcoin is a new and evolving area and determining their legal and regulatory status is ongoing. Cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism.

HMRC understands that Bitcoin operates via a peer to peer network, independent of any central authority or bank. All functions such as issue, transaction processing and verification are managed collectively by this network. All Bitcoin transactions are recorded in a shared public database called a “block-chain”. New Bitcoin is produced when a new block is attached to the chain. A new block can only be added to the chain when the answer to a complex cryptographic algorithm is solved. Participants in this activity are known as “miners”.

As well as mining, activities include the buying and selling of Bitcoin and providing exchange facilities for parties to trade Bitcoin with recognised currencies. Bitcoin may be held as an investment or used to pay for goods or services at merchants where it is accepted. In the UK, there are already a number of outlets, including pubs, restaurants and internet retailers, that accept payment by Bitcoin.

VAT treatment of Bitcoin and similar cryptocurrencies

As an EU tax, the VAT treatment for cryptocurrencies adopted by the UK must be consistent with any treatment that may eventually be implemented across the EU.

Given this, the evolutionary nature of these cryptocurrencies and the legal and regulatory environments in which they currently operate, this brief outlines HMRCʼs provisional VAT treatment pending further developments; in particular, in respect of the regulatory and EU VAT position. Taxpayers can rely on the VAT treatment outlined below unless and until HMRC announces any changes. Any changes will not apply retrospectively.

For VAT purposes Bitcoin and similar cryptocurrencies will be treated as follows below, this in no way reflects on how they are treated for regulatory or other purposes:

(1)Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received.

(2)Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of “transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments.”

(3)When Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves.

(4)Charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above.

However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin or other similar cryptocurrency. The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place.

Corporation Tax, Income Tax and Capital Gains Tax treatment of Bitcoin and similar cryptocurrencies

As with any other activity, whether the treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies will be subject to Corporation Tax, Income Tax or Capital Gains Tax depends on the activities and the parties involved.

Whether any profit or gain is chargeable or any loss is allowable will be looked at on a case-by-case basis taking into account the specific facts. Each case will be considered on the basis of its own individual facts and circumstances. The relevant legislation and case law will be applied to determine the correct tax treatment. Therefore, depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable. For example gambling or betting wins are not taxable and gambling losses cannot be offset against other taxable profits.

For businesses which accept payment for goods or services in Bitcoin there is no change to when revenue is recognised or how taxable profits are calculated.

Corporation Tax: The profits or losses on exchange movements between currencies are taxable. For the tax treatment of virtual currencies, the general rules on foreign exchange and loan relationships apply. We have not at this stage identified any need to consider bespoke rules. For companies, exchange movements are determined between the companyʼs functional currency (usually the currency in which the accounts are prepared) and the other currency in question. If there is an exchange rate between Bitcoin and the functional currency then this analysis applies. Therefore no special tax rules for Bitcoin transactions are required. The profits and losses of a company entering into transactions involving Bitcoin would be reflected in accounts and taxable under normal Corporation Tax rules.

Income Tax: The profits and losses of a non-incorporated business on Bitcoin transactions must be reflected in their accounts and will be taxable on normal income tax rules.

Chargeable gains – Corporation Tax and Capital Gains Tax: If a profit or loss on a currency contract is not within trading profits or otherwise within the loan relationship rules, it would normally be taxable as a chargeable gain or allowable as a loss for Corporation Tax or Capital Gains Tax purposes. Gains and losses incurred on Bitcoin or other cryptocurrencies are chargeable or allowable for Capital Gains Tax if they accrue to an individual or, for Corporation Tax on chargeable gains if they accrue to a company.

Future implications

The tax treatments outlined in this brief are for tax purposes only. They in no way reflect on the treatment of cryptocurrencies for regulatory or other purposes.

Given the evolutionary nature of these cryptocurrencies, HMRC will issue further guidance as appropriate.

GM Professional accountants have offices located in London, Manchester , Birmingham and Essex,