Buying from Limited Company


#1

Does anyone know how would be treated tax wise and accounting wise the purchase of ADA through a UK limited company… US corporation would do too… as rules are probably quite similar?


#2

Trading or Investment? Potentially different treatment.


#3

Hi @Ken_Yd
I will buy to hold them in a deadalus wallet and participate to PoS… is that considered investment?also I will have to buy ETH then trade to ADA but once that happened I will hold them in a wallet


#4

I’m not a tax professional, so this is merely my current understanding of the principles… It would be very useful to get this confirmed by a tax pro, or clarified by HMRC if it isn’t already!

Also bear in mind the net result to the ultimate beneficiaries will be affected by specific factors, such as whether the ultimate shareholders are UK resident, overseas resident, or UK resident but non-domiciled.

(Disclaimer- this is not tax advice, and as always, I would take professional advice specific to your circumstances).

I think both your gains/losses and any staking revenue will be considered as general trading income, and taxed through Corporation Tax (and any subsequent taxes on dividend receipts by your Ltd Co’s shareholders), since it’s inside a Ltd Co. If you “buy and hold” long term within a Ltd company, you are unlikely to be required to mark your inventory to market and can carry at historic cost on the balance sheet, only crystalising the income from any price gains (and the associated tax liability) when you sell them (First In First Out), but if HMRC deem that you are making a “trade” out of actively trading something (and I assume this would extend to cryptos), they will require it to be marked-to-market on a current value basis for revenue recognition purposes, and tax paid on the resulting mark-to-market profits irrespective of whether you still hold them or not (which can obviously have big cashflow consequences). I think staking revenues are likely to always be deemed income at their market value when awarded (just like interest, dividends, or payments-in-kind), but again, take advice. Assuming staking revenues are paid in crypto, I think they would then be treated as investments at the price used to assess their value for subsequent trading income gain calculation purposes (but of course you could always choose to liquidate them to strike the explicit value). I would seek certainly professional advice or seek clarification direct from HMRC if the anticipated scale is material.

I suspect total tax might be less if held personally, or through a “tax transparent” LLP, since the personal CGT regime would apply (unless you were running the self-employed “trade” of actively day trading cryptos) rather than Corporation Tax + Personal Income Tax regime on Dividend distribution. I suspect staking income would be taxed as personal income tax based on its value at the time of award, Then any subsequent gains based on a purchase at that price vs. the final sale price would fall under CGT.

Of course you also need to consider what operating and admin expenses can be legitimately deducted under either scenario


#5

might be worth keeping an eye on this… https://cryptotax.uk/hmrc/ and https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12100


#6

I read that crypto investments are treated under capital gains tax rules unless you can prove there is a sufficient amount of uncertainty involved, in which case it would be treated as gambling (tax free). Don’t think this would apply with ADA, so it would be subject to 20% tax. I have a VAT registered company in the UK and the capital gains would be 19% if bought through a company, unfortunately didn’t know this when buying. At work at the moment but will try and find a source for you this evening.

Elliot


#7

Yes but when taxed within a Company, the proceeds will be taxed again as Dividend tax when distributed to shareholders, at the marginal rate of tax that applies to them.

Also, CGT rates are a bit more complicated… You have a tax free allowance, and then rates increase progressively depending on your combined total Income and Taxable Gains above the threshold.
Its only 20% assuming you are a higher rate taxpayer…

"
If you pay higher rate Income Tax
If you’re a higher or additional rate taxpayer you’ll pay:

28% on your gains from residential property
20% on your gains from other chargeable assets

If you pay basic rate Income Tax
If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

Work out how much taxable income you have - this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.

Work out your total taxable gains.

Deduct your tax-free allowance from your total taxable gains.

Add this amount to your taxable income.

If this amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above this.

Example

Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,300. Your gains aren’t from residential property.

First, deduct the tax-free allowance from your taxable gain. For the 2017 to 2018 tax year the allowance is £11,300, which leaves £1,000 to pay tax on.

Add this to your taxable income. Because the combined amount of £21,000 is less than £33,500 (the basic rate band for the 2017 to 2018 tax year), you pay Capital Gains Tax at 10%.

This means you’ll pay £100 in Capital Gains Tax.

If you have gains from both residential property and other assets
You can use your tax-free allowance against the gains that would be charged at the highest rates (for example where you would pay 28% tax)."


#8

thanks @Ken_Yd this is good information with which I can challenge my accountant that to the question “can I buy crypto with the Ltd” did not even reply.

I have to read again everything, I struggle with the accounting jargon but I understood the following:

If I hold the ADA and do not trade them, any possible gain will be taxed only when I convert the crypto back to a FIAT currency.

is that correct? because this is all I care.
If I get taxed every year on a gain that I am not actually enjoying and most probably will disappear with a very probable crash, then is a bit of a pain.
But if I can just risk the cash asset of the company and forget about them for years… they(hmrc) can tax me even 40% when I get my profit out, I am only risking the company money and made a good earning out of it… (when my ADAs will be worth millions :smiley: ) happy to serve my adoptive country :pray:


#9

I don’t think that’s quite right. It’s not just generalised conversions of crypto to FIAT- each sale of one crypto for another also crystalises a gain/loss (at its then GBP value). You might be able to argue that if you only bought BTC or ETH as a short-term conduit to an ADA purchase it was all part of the same transaction, BUT, for example, if you held ETH for a while, then switched to ADA, you will have crystallised a taxable gain/loss on the ETH, and created a new FIFO position in the ADA whioch would be seperately taxed when sold…


#10

I see, is more complicated, but if I buy ETH and exchange to ADA within the day should be fine.

in this other post they talk about a Bed and Breakfasting rule that seems to imply within 30 days it should not be a problem:
https://forum.cardano.org/t/taxes-season/4691/2?u=vanamonde
https://forum.cardano.org/t/taxes-season/4691/3?u=vanamonde

you disagree?

jeees, so complicated, hopefully in a Cardano world all of this will just be scripted in and no-one will have to worry :slight_smile:


#11

Yes I think that reflects the reality- that you only “passed through” the ETH as means to buy the ADA, so the costs of doing so (transaction fees + any market change) where just part of the costs of acqusition. Effectively you should be able to claim the original FIAT cost you incurred as your base cost (allowing for any “dust” left in the BTC/ETH, which you carry forward as a new position- it will always be a positive balance). Bed and Breakfasting rule will only apply within the same coin I think.

Yes its complicated…,… tax always is unfortunately, but most of the complications fall away with reference to the facts of the transaction. Just need to avoid the technical rat-holes.


#12

Thanks Ken, also in US FIFO accounting rules are being applied shortly as well