In this episode of our Learn Better Podcast, host Stuart Pedley Smith, Head of Learning at Kaplan, looks at crypto and digital assets in the world of tax.
Our guest is Chris Smith, Personal Tax Director at BKL - an accountancy, advisory, and tax support firm in Finchley, North London. This episode is all about crypto and digital assets in the tax world, as Chris goes well beyond what most people would consider the traditional tax route. He has developed expertise in advising on the tax implications of crypto-currencies.
Key topics
A career in tax and cryptocurrency
Chris talks about his career in tax. He didn’t want to go down the university route after education, but still wanted a professional qualification. This eventually landed him a role in tax, and he decided to specialise due to the tax industry's ever-evolving market.
He continued to explain how specialisation in this sector can take years, but it’s almost inevitable that you’ll find a speciality that is in your area of interest. The rise of cryptocurrency came at an ideal time for Chris, as he noticed that no one was looking at this from a taxation point of view.
Back in 2015, you could search for ‘crypto accountant,’ and nothing would come up.
What is cryptocurrency?
Chris explained what cryptocurrency is through analogies and simple references. There are lots of different ways that cryptocurrency is used, but Chris describes it as “a form of digital token that can be traded with full transparency.” He draws on the similarities between cryptocurrency and shares.
The easiest way to describe it is that it’s similar to shares. It’s a digital form of shares or a digital form of token.
Another way of viewing crypto is, at its root, it can initially be compared to traditional currency, which is a medium of exchange. For example, you will give currency (money) to someone for goods and services. Although we have a multitude of currencies and banking systems globally, their objectives are complex and they don’t all work together.
But if you had a digital token that had a relatively stable value and was accepted as a medium of exchange all over the world this would make it far easier to trade globally. The challenge for crypto however is that it is far from stable.
Blockchains and NFTs
With cryptocurrencies comes the discussion of blockchain. Chris and Stuart discussed what exactly blockchain is, suggesting that, in essence, it is a form of digital ledger that can keep track of a crypto asset.
Whereas an NFT is a non-fungible token. In a nutshell, these are digital tokens (similar to cryptocurrencies such as Bitcoin), yet they usually have more creativity behind them, such as a piece of unique art or music. Again, an NFT is an asset in its own right, but there are lots of ways that people are being creative and digitising their work in a token format.
Government regulations and the value of cryptocurrencies
Stuart asks Chris to explain the regulation of crypto. It is currently unregulated, which can bring challenges and risks. Chris discusses how the supply and demand of cryptocurrencies are what dictate their value. As a consequence, the market can, and has been, manipulated particularly by people with large platforms who want the price of a certain cryptocurrency to rise, such as Dogecoin or Bitcoin.
However, many people are unaware of the transparency behind cryptocurrency and trading. Chris highlights the unique codes of digital tokens which leads to full transparency. For example, when trading in a blockchain, the code can be tracked and traced. So, there can be a level of digital security with the rise of crypto.
How do you manage tax with cryptocurrency?
Chris goes on to talk more about his specific area of expertise, the tax treatment of cryptocurrency and digital assets. Cryptocurrency is seen as a taxable asset, yet there is currently a lack of specific legislation.
Cryptocurrency is managed through the same legislation as shares and securities. Therefore, if you hold an asset and dispose of it, this can be taxed as disposable income or shares. For tax purposes, cryptocurrency is assessed through capital gains or income tax and whether this applies to the individual.
Nevertheless, he hopes for future crypto-specific legislation due to the complicated nature of taxing this. For example, if your asset devalues, you may have paid more tax than what you have earnt, leading to complications.
Would you recommend a career in this area of finance?
The golden question: would you recommend this as a career?
Chris tells Stuart how crypto is a good area to specialise in as it’s a growing market. And, from an accounting perspective, cryptocurrency is seeing how change can be a good thing, and the rise of younger businesses is interesting to be part of.
However, this isn’t something to look at specialising in straight away in your career, as it’s still a fairly new concept and there may not be as many roles out there as other specialisms.