COMPLIANCE
Justine Riccomini FFTA AIPA Chartered MCIPD ChFCIPP, head of taxation, the Institute of Chartered Accountants of Scotland (ICAS) asks if you have clients intending to pay their employees in cryptocurrency and reflects on whether you’re fully qualified to advise them in this area Considering cryptocurrency to pay employees?
Main points: l there’s increased public interest in cryptocurrency l employers have started to consider requests by employees to be paid in cryptoassets, such as Bitcoin l there’s no change to the tax treatment of these types of payment in UK tax law for employees – the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 applies.
C ryptocurrency, cryptocoins, exchange tokens – all words which are becoming increasingly common in everyday language, which can be roughly translated as ‘virtual money’s worth’. Increased appetite for cryptocurrency Virtual money’s worth appears to carry all the hallmarks of a high-risk investment cryptoassets, Bitcoin, Cardano, payment tokens, Ethereum, – but that isn’t stopping people from investing in it. According to the Payment Services Regulator (PSR), the market is now worth £1.6 trillion globally and over 2.3 million people now own a cryptoasset in the UK – the average investment holding being around £300. Suggestions are now doing the rounds that it may be possible to purchase cars with Bitcoin, for example, or that virtual money could eventually become legal tender. Therefore, it’s easy to see how some directors and employees may develop an appetite for being paid in cryptocurrency or in benefits-in-kind (BIKs) (possibly using a form of virtual salary sacrifice), which have been purchased by these means. Where do you and your clients start to navigate the maze, and how does UK payroll and taxation fit into the equation? It’s important to note that employees working overseas may be treated more, or less, favourably where being paid by cryptocurrency is concerned. For example, in China, cryptocurrency is illegal and it’s
not possible to exchange it for traditional currency, whereas in Europe and the United States, this isn’t the case. Keeping up with the rapid pace of change It’s probably worth reading up on exactly what ‘blockchain’ (the technology behind cryptocurrencies) is and what the PSR has to say about it all. They have recently referenced a 2019 white paper by Diem’s in the United States, which speaks of the use of a crypto wallet which could be used to make payments via PayPal, for example. The Financial Conduct Authority (FCA) has also conducted research which points towards the use of virtual money in transactions rapidly becoming the norm. That research can be located here: https:// bit.ly/3KUVzCx. However, norms are often accompanied by complacency. How much trust can be placed in a currency that isn’t currently traceable or regulated and, with that in mind, should it really be used to pay and reward people? Risky business? The UK government is currently working with other jurisdictions and the global banking sector considering how to regulate cryptoassets. It’s important to note that the FCA doesn’t regulate most cryptoassets and it emphasises that investments in unregulated cryptoassets are therefore unprotected. Agents and employment tax advisors should consider the risks for themselves
and clients in this complex and relatively opaque area. The FCA has set up a cryptoasset page to raise awareness of this and provide information to the public. It recommends that independent financial advice should be sought from a suitably qualified professional when considering such investments. Its top four considerations are: l volatile value – the market value of cryptoassets can be extremely volatile. You could lose a lot, and quickly. It’s also worth remembering there are many competing blockchain companies looking for your investment and some will inevitably fail l theft – cryptocurrencies can only be bought and sold on cryptocurrency exchanges. These exchanges are a tempting target for hackers, and security breaches have led to the theft of digital currency, with not all investors getting their money back l hard to spend – you can’t spend cryptoassets like cash, as few retailers accept cryptocurrency such as Bitcoin as payment. So, generally you must sell them on an exchange, with their associated security issues. If you’re storing your cryptoassets on a password-protected personal hard drive or memory stick and you lose or forget the password, you may well have lost access to your investment altogether l unregulated – cryptoassets are largely unregulated. If your investment is stolen, there isn’t an easy way to get your money back, and the Financial Services Compensation Scheme can’t protect you. As the industry is still developing, there are
| Professional in Payroll, Pensions and Reward | October 2022 | Issue 84 30
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