LogoLogo
Recap HomeCrypto Tax Guide (Lite)HMRC Cryptoassets Manual
  • A Technical Guide to Cryptocurrency Tax for UK Individuals
    • What are Cryptoassets?
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Cryptoassets?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income tax
      • VAT
      • Inheritance tax
      • Stamp Duty
    • How Much Tax Will I Pay?
    • New HMRC DeFi Guidance
      • Overview of HMRC guidance
      • 1️⃣Is the Reward Income or Capital?
      • 2️⃣Is Beneficial Ownership (BO) transferred?
      • 3️⃣Consider the Tax Treatment
        • Staker/Lender/Collateral Provider
          • Income Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1A
              • Example 2A
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1B
              • Example 2B
          • Capital Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1C
              • Example 2C
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1D
              • Example 2D
        • Borrower
    • Investor or Trader?
      • Badges of Trade Limitations
      • HMRC Approach
      • Court Cases involving Financial Traders
    • Capital Gains Tax
      • Calculating the Capital Gains Position
      • Disposal proceeds
      • Disposals to Connected Parties
      • Allowable costs for CGT
        • Exchange fees
        • Forks - affect on allowable costs
      • Capital Loss Claims
    • Income Tax
      • Financial trading income
      • Miscellaneous Income
      • Employment income
    • Fair Market Valuation
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🔄Trading Crypto to Crypto
    • 🛍️Purchases using Crypto
    • 🎁Gifts
    • 💍Spouse Transfers
    • 🎗️Gifts to Charity, CASCs & Bodies for a National Purpose
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
      • UK Employer
      • Overseas employer
      • National Minimum Wage (NMW)
    • 🚨Lost & Stolen Crypto
    • 🎲Gambling
    • 💧Liquidity Pools
      • Example - Liquidity pool
    • ⬆️Token Upgrades/Swaps
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 🔄REPOS
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮NFTs earned playing games
  • Record Keeping
  • Filing Your Self-Assessment
    • How to Register for Self-Assessment
    • How to Fill In the Tax Return
    • Submitting the Tax Return and Paying the Tax
Powered by GitBook
On this page
  • Terminology Explanation
  • When does the new HMRC guidance apply from?
  • Possible future changes to this HMRC guidance

Was this helpful?

  1. CRYPTOCURRENCY TAX

New HMRC DeFi Guidance

Overview of HMRC Guidance on DeFi Lending & Staking published 2 February 2022.

PreviousHow Much Tax Will I Pay?NextOverview of HMRC guidance

Last updated 3 years ago

Was this helpful?

Terminology Explanation

Although the section on this new guidance in the HMRC Cryptoasset Manual is titled ‘Decentralised Finance: Lending and Staking’ it is clear from the contents and examples that it is intended to cover all lending and staking scenarios; regardless of whether or not it was via a decentralised or centralised platform.

When does the new HMRC guidance apply from?

There is a great deal of uncertainty as to when the changes come into effect from. HMRC’s guidance isn’t the law; it is their interpretation of the law. So if this new guidance from HMRC is a correct interpretation of the law, then it applies retrospectively to all prior transactions. This new guidance from HMRC is not a change in position, it is just them providing more clarity and guidance on the laws that were already in place.

Therefore, if upon reading the guidance you think your prior years’ tax returns were filed incorrectly, the onus is on the taxpayer to file amended returns for 2020/21, or a voluntary disclosure for earlier tax years.

Possible future changes to this HMRC guidance

There has been significant criticism about the damaging consequences of this HMRC guidance from the crypto community.

CryptoUK has formed a working group of tax professionals and barristers with the objective of lobbying the government to create new tax legislation specifically for cryptoassets. This aims to address the many problems with the current law governing the tax position of cryptoassets; particularly yield generating activity covered by this new HMRC DeFi guidance.

It is very positive that Economic Secretary to the Treasury, John Glen, has announced in April 2022 that the government agrees that the current tax legislation will need major surgery to make it work more easily for crypto. They will be engaging with stakeholders on the changes they want to make and are looking to resolve specific issues like the treatment of DeFi loans and staking. They are also setting out new legislation to see stablecoins recognised as a valid form of payment in the UK. Although this will be regulatory rather than tax legislation, there will be an impact on the tax position if stablecoins are recognised as currency.

Therefore, with an appetite from Government to introduce changes to the tax system for crypto (DeFi in particular) it is optimistic that the tax professionals can work with them to come up with something sensible which attracts crypto businesses and investors to the UK.

Therefore, the HMRC guidance published on 2 February 2022 regarding DeFi lending and staking may well change, evolve or be entirely re-written over time, depending on the progress of any new tax legislation. Drafting and enacting new legislation can be a long-winded time-consuming process and it may be a few years before anything changing this HMRC guidance is in place.

HMRC explain at that it is the facts of the situation, rather than the terminology, which is determinative of the tax position.

CRYPTO1000