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A group of crypto tax experts from prominent accounting services in the UK have raised concerns over HM Revenue and Customs' (HMRC) proposed tax framework for decentralised finance (DeFi) transactions.
In a letter sent to HMRC on June 22, the experts disputed the proposed legislation and criticized it as unrealistic and oversimplified. The letter was written by Louise Lane, a chartered accountant at Wright Vigar, and Dan Howitt and Ben Shepheard, co-founders of tax software company Recap. They argued that HMRC's examples and scenarios in the consultation document did not accurately reflect real-world DeFi transactions and lacked the necessary complexity. The experts called for a more realistic approach and suggested alternative methods for taxing DeFi rewards. They disagreed with HMRC's classification of DeFi rewards as income and proposed treating them as capital instead. The experts have requested ongoing dialogue with HMRC to present a more suitable and balanced tax framework for DeFi transactions.
The proposed tax framework by HMRC aimed to simplify crypto-asset taxation in the UK. However, the industry experts believe that the current proposals would actually increase complexity for taxpayers. They expressed the need for a more nuanced approach to DeFi transactions and emphasized the importance of considering the unique characteristics of the crypto market. Wright Vigar and Recap are actively engaging with HMRC to advocate for their alternative tax treatment proposals and to ensure a more suitable framework that aligns with the realities of DeFi transactions.
The outcome of this dialogue will have implications for the tax treatment of DeFi transactions in the UK and could impact how individuals and businesses navigate their tax obligations within the crypto space. As the crypto industry continues to evolve, governments and regulatory bodies are grappling with the challenge of developing appropriate tax frameworks that strike a balance between simplicity and accuracy.
By fLEXI tEAM
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