Classification query

Hi, I have a query about a potential activity I am currently looking into and assessing the viability of. In summary it would be to develop and automate an interface that allowed users to exchange crypto (USDT) for a virtual currency item used across a pre-eminent gaming platform, or to exchange said virtual currency item for crypto. Several similar interfaces already operate, and a usual ‘margin’ per currency item trade would be from USDT 0.04 to 0.07, although exchange rates vary over time and can make relatively large market movements in short periods of time based on events in and expectations on the virtual economies the virtual currency item supports. My issue is coming from a lack of clarity around how the proceeds should be considered for tax purposes, and professional advice is tricky to seek and receive because of the nature of the items concerned and the developing environment that governs them. The options I have looked at include: 1) Considering the USDT – virtual currency item as a FOREX couple and the activity as FOREX trades What is trying to be achieved here is the trade/exchange of two different forms of digital currency, one being crypto and the other a gaming virtual currency item. From a conceptual point of view taking this approach feels like it would make the most sense, and I would assume profits taken out would be treated under income tax. 2) Considering the exchange to be the purchase and sale of cryptocurrency I appreciate that FOREX trading would traditionally only be linked to national currencies, and so not only having a cryptocurrency but also a video game currency item may exclude the preferred option from consideration. In that case, the next most suitable classification in my mind would be to consider the activity to be cryptocurrency exchange/trading, with profits taken out treated under income tax. 3) Considering the exchange to be the purchase and sale of an ‘Electronically supplied service’ It may be that the video game currency item cannot be considered as either a ‘currency’ or a ‘cryptocurrency’ under current rulings. The next best definition that would fit would seem to be that of an ‘Electronically supplied service’. This would place the sale/exchange of the item (after the threshold was met) as eligible for VAT, which based on the existing online market would render the potential trading activity an untenable proposal. I understand from previous answers to different posts that under Self-Assessment principles, HMRC does not generally provide clearance on how individuals should declare their income or gains. In this instance I am hopeful you can provide some basic level of guidance or direction – for instance, if I treated this proposal as Option 1 but later received notification from yourselves that Option 3 was actually the most relevant option, then the potential impact from non-calculated VAT would be ruinous. Thanks in advance.

Hi,

For an answer to a detailed question of this nature, you would need to contact our self assesment team using the link below or seek professional advice.

Self Assessment: general enquiries

Thank you.