Can a UK LTD A give away (dispose) of cryptocurrency to a UK LTD B ?

[Fazoule]

I have already contacted couple of UK accountants about this and waiting for their responses but I wanted to also have the forum opinion on this.

If a Company A received 5 BTC for a job done can it give away these same 5 BTC to an unrelated Company B (not part of the same group) ?

B y reading the official HMRC guidance (Cryptoassets: tax for businesses) it does seem like this is something that can be done, however my question is: What are the tax implication of the disposal?

a) Is it the responsibility of Company A to fully pay any Corporation Tax due and then be able to give away the rest to Company B ?
b) Or does Company has to write off the disposable making it pay no Corporation Tax ? (5 BTC that comes in and 5 BTC that comes out) thus making it Company B be responsible to pay the Corporation tax on the Crypto it has received ?

(Note, this has nothing to do with tax evasion, my question is simply understanding, who needs to pay what)

For the sake of simplicity, let's say there is no Capital Gain (price of the Bitcoin is the same) between the moment Company A has been payed and when it disposes of the Crypto

 

[TacitusKilgore]

Yes you can do this, but take a step back and look at it from an accounting perspective.

If the Bitcoin price doesn't change at all between Company A buying it and then disposing of it to Company B, then B will still be receiving that value for nothing unless it's a "loan" which should be repaid or eventually forgiven by A which is still a form income to B.

So it's either:

1. a loan from A to B, where the loan is an asset in A and a liability in B (while the crypto is an asset in B); or
2. income in A (as the company is receiving an asset for free).

I don't know all the ins and outs of UK Corporation Tax and what the possible implications are of an "interest free loan" between two companies (because it's not an arms length transaction - no company would loan an unrelated company money interest-free). I would advise you seek appropriate professional advice.

 

[Martin Everson]

Based on the below crypto will have a mark to market (MTM) GBP price when acquired which you should have documented. It will also have a MTM when you dispose of it. Once you have those figures in GBP your accountant will do the rest. Hope that makes sense.

For the sake of simplicity, let's say there is no Capital Gain (price of the Bitcoin is the same) between the moment Company A has been payed and when it disposes of the Crypto

Hummm...then it depends how you gave it to the other company on the books a HMRC will only work with MTM cash values of the crypto. I would like to know what your accountant has to say btw.

 

[TacitusKilgore]

I think @Fazoule knows the acquisition and disposal values will be different, they just want to know whether they are missing out on any other pieces of the puzzle.

 

[avalanche]

no company would loan an unrelated company money interest-free).

Although I agree with all other points, you can still consider cases when company A would like to support company B with an interest-free loan simply because company A depends on product of company B while company B is struggling.

 

[Martin Everson]

Although I agree with all other points, you can still consider cases when company A would like to support company B with an interest-free loan simply because company A depends on product of company B while company B is struggling.

It gets complex if it is a non-interest bearing loan in UK. Your accountant is needed .

CFM33173: GAAP: Interest-free loans and other non-market loans

Example

A shareholder lends £100,000 to B Ltd, a UK company, on 1 January 2015. The loan is interest free and is repayable on 1 January 2016. It is assessed the market rate at which B Ltd can borrow is 10% per annum (this is therefore the rate used to discount the cash flows of the loan).

Accounting by B Ltd - year ended 31 December 2015

Initial recognition:

Dr Cash (balance sheet) £100,000
Cr Loan liability (balance sheet) £90,909
Cr Capital contribution (Equity) £9,091

Effective interest accrual:

Dr Finance expense (P&L) £9,091
Cr Loan liability (balance sheet) £9,091

(The numbers in this example are used to illustrate the technical points. The precise accounting amounts would need to be calculated by the company.)

In this example, the accounting difference of £9,091 is credited direct to B Ltd’s equity as a capital contribution. This recognises the fact that by lending to the company at below the market rate, the shareholder is effectively contributing value to it. As noted above, companies do not normally enter into financial instruments on non-market length terms. Careful consideration of the facts is therefore needed to ascertain what transaction is taking place and how it should be treated both for accounting and tax purposes.

This type of situation often arises where there is some connection between the lender and the borrower. There are tax rules which therefore need to be considered, particularly the connected company rules under the loan relationship regime .