There are an increasing number of companies taking payments in cryptocurrencies, alongside the usual cash, debit card and credit card payments. This includes established companies like Lush and newer businesses like WeWork.
Obviously, this is good news to those who are right behind this new, entirely untraceable way of doing business. But the impact isn’t quite as simple as it seems and HMRC have to predict all the possible permutations of using cryptocurrency more commonly.
What happens when businesses go bust?
This is one question that may require regulation to answer. As it stands, insolvency administrators can’t account for the origin or whereabouts of a company’s cryptoassets – as HMRC prefers to call it.
When a business becomes insolvent, it’s up to administrators to make sure as many of the company’s creditors are paid off as possible, by using any remaining assets.
Cryptocurrency is, by definition, untraceable. This means that it cannot be tracked. Which means that administrators can’t see where it’s come from. It also means that it can’t see if the directors, owners or staff of an insolvent company are illegally stripping out these funds – because you also can’t trace where it’s going.
Before cryptocurrency was created, companies’ only option would be to hide assets offshore, if they decided to try and salvage something for themselves from a bankrupt business. Using offshore trusts in this way is also illegal. But at least it’s traceable. The arrangements are deliberately complex, to make tracking the money as difficult as possible. But it’s something that experts can resolve.
Cryptocurrency basically just disappears into an online ‘virtual wallet’.
Why is HMRC so concerned?
Companies often owe HMRC a substantial Income Tax and Corporation Tax bill, by the time they’re at crisis point. Like any creditor in this situation, The Treasury want to recover as much as possible from an insolvency situation.
One of Begbies Traynor’s managing directors, Julie Palmer, told The Guardian that its vital to sort out regulation now: “The potential is limitless, depending on how popular this becomes…We’ve got even less of a chance of actually tracing that and seeing the money that’s been taken out…It’s potentially a major loss of income tax revenue.”
A spokesperson for HMRC said: “We take action, including using powers provided by parliament to gather data from a range of information sources, to identify and investigate those that have failed to declare all their income and gains, ranging from individuals operating in the hidden economy, through to sophisticated organised crime groups and offshore structures used to hide earnings and other assets.”
They are also reviewing the recent public consultation on the regulation of cryptoassets. Despite opposition, there’s even talk between the Bank of England and HMRC about a ‘Britcoin’ crypto currency. This would be integrated into our current monetary system. It seems that this would be issued by the bank, which isn’t in keeping with the cryptocurrency philosophy of devolved global financial powers, but does give some traceability to its use.