GfC21: Help with VAT treatment of cryptoassets

HMRC have released a further publication in their Guidelines for Compliance series, “Help with VAT treatment of cryptoassets”. GfC21 brings together various parts of HMRC’s existing guidance on the VAT rules relevant to cryptoassets, explaining what businesses need to consider when deciding how VAT applies to cryptoasset activities, as a means of aiding compliance. The guidance covers the VAT liability of transactions in cryptoassets, VAT registration, required customer information, place of supply rules and accounting for VAT both for UK and overseas businesses. GfC21 is relevant both to those creating, selling or exchanging cryptoassets and also businesses that operate platforms where others carry out these activities.

The guidance explains that, “Cryptoassets (sometimes called ‘tokens’ or ‘cryptocurrencies’) are a digital representation of value that are created, stored and transferred securely using public computer networks, and cannot be altered or destroyed”. Tokens may represent ownership of something or the right to access particular goods or services. The guidance explains that there are no separate VAT rules for cryptoassets. However, the guidance is then remarkably thin in assisting how any particular supply in relation to a cryptoasset should be treated and the significance of the underlying asset or service to the VAT analysis. For example, there is no mention in the guidance of cryptocurrencies as exempt legal tender for VAT purposes, as confirmed by the CJEU decision in Hedqvist (Case C-264/14). Nor does the guidance provide any further assistance in determining where transactions in cryptoassets might be treated as “electronically supplied services” (ESS), which is important for determining the place of supply.

GfC21 does, however, deal more specifically with non-fungible tokens (NFT), unique digital certificates that represents ownership of an asset. The guidance explains that the VAT treatment of an NFT will depend on the asset it represents. For example, if the underlying asset is a piece of digital art, then the same VAT treatment as digital art will usually apply. If the underlying asset is a physical item, such as a car, then the same VAT treatment as a car will usually apply

There is also more in the way of guidance for dealing with VAT where cryptoassets are supplied through an online platform. The guidance explains how to determine if the supply is made by the supplier or by the platform operator. In particular, where a digital platform enables third parties to supply cryptoassets, the platform operator will be liable to account for the VAT on those sales unless: the actual supplier is clearly identified (including in invoices); and the platform operator does not authorise the charge or delivery or set the general terms of the sale.

For example, a digital artist creates a series of images, each with its own NFT, and lists the token on a digital art platform under a pseudonym. To purchase an image, customers must: create a user account on the platform; agree to the terms and conditions set out by the platform; provide their contact details. Customers buy the NFTs online for a fixed price. When they complete the purchase, the proof of ownership is transferred to their wallet. The smart contract used for the purchase automatically sends payment directly to the artist and sends the sales commission directly to the platform. The guidance explains that this scenario is an ESS and the platform operator in this case is responsible for collecting and paying VAT, as they have set the terms for the sale. The platform must ensure they have customer details so they can correctly identify the place of supply.

However, if a platform’s only role in the supply is to provide for the processing of payments, it will not be regarded as a digital platform and will not have to account for the VAT on the sale of the ESS or digital service.

Comment

GfC21 provides a helpful overview of the broader VAT issues that transactions in cryptoassets give rise to and the consequences of the involvement of platform operators but fails to provide any real detailed analysis of the identification of the nature of cryptoassets for VAT purposes.