HMRC has announced an update to its regulations to introduce its digital services tax against cryptocurrency exchanges operating in Britain.

Exchanges for digital currency Bitcoin will be included as part of the UK regulator’s digital tech tax after it concluded it does not qualify as a commodity or currency.

The tax, which came into force in 2020 – designed to ensure tech firms such as Google, and Facebook pay more – is attempting to combat potential avoidance of crypto taxation.

HMRC said crypto assets “are not financial instruments”, meaning that online exchanges that sell cryptocurrencies will not be able to claim financial marketplace exemption.

A 2% tax is set to be levied on online marketplaces, search engines and social media sites that have a global revenue of over £500 million and UK sales of over £25m.

It is expected to be phased out after a G20 tax deal earlier this year to punish avoidance but remains in force until a replacement measure comes into effect.

Commenting on the news rules, HMRC said in an update to its guidance that there are “a wide variety of crypto assets, each with different characteristics”.

But, because cryptocurrencies do not represent commodities, financial contracts, or money, “it is unlikely that crypto asset exchanges can benefit from the exemption for online financial marketplaces,” HMRC said.

Companies – such as one of the world’s biggest exchanges, Coinbase – will be included in the 2% tax levy. The firm’s UK subsidiary reported sales of £18m in 2020, but the firm recently reported a quadrupling of its global revenues, meaning it is likely to pass the 2021 UK threshold.

The US treats cryptocurrencies differently to the UK, designating them as commodities. Industry body CryptoUK said it is lobbying HMRC and the Treasury over the issue, claiming it is unfair to treat cryptocurrencies differently to other financial assets.

Ian Taylor, a director of CryptoUK, commented that the move was a new blow to cryptocurrency exchanges after the “arduous” licensing regime introduced by the Financial Conduct Authority (FCA), leading to higher fees for those buying and selling digital currencies.

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Cryptocurrencies are a volatile form of currency, and the UK Government could be seen as taking steps to combat tax avoidance and provide some form of regulation.

In late June this year, the FCA announced it was banning the world’s biggest cryptocurrency exchange Binance from operating in the UK in an apparent move to reel in crypto exchanges.

In a statement, the FCA said it was preventing Binance Markets Limited – part of the wider Binance Group – from undertaking “regulated activities”.

“Due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA,” the regulator confirmed.

The regulator required crypto firms to register their services since January 2021 as part of rules looking to tackle money laundering.

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