In recent news, the UK government is considering giving the national tax authority the required powers to seize digital assets from custodial wallets of companies evading tax. Reportedly, the government’s step is in the wake of new regulations normalizing digital asset payments.
Sources reveal that the government is planning to give the required authority to the HM Revenue and Customs (HMRC). The HMRC is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support, the administration of other regulatory regimes including the national minimum wage, and the issuance of national insurance numbers.
Notably, the government is considering the implementation of regulations to authorize the agency to seize crypto assets from businesses that have not fulfilled their tax obligations.
Now, the UK government is actively reviewing proposals to provide HMRC with the necessary authority to access custodial digital wallets.
This initiative is part of a broader plan aimed at modernizing the tax collection process for businesses that have failed to pay taxes. The possibility of the increased popularity of crypto wallets as preferred means of payment for goods and services was highlighted in a recent consultation document, which discussed the potential impact of added regulations on digital currencies.
As per the document, if the HMRC can directly recover debts from bank accounts, it should also have the ability to do the same with digital wallets.
Currently, the Direct Recovery of Debts (DRD) legislation does not extend to digital wallets. This means HMRC currently has no enforcement powers to recover tax debts if a business has substantial funds in a digital wallet but is refusing to pay,” the paper said.
However, the paper also noted that it was unclear how feasible it would be to consider crypto wallets considering the fluctuating value of crypto assets. A comment from the paper noted:
Given HMRC has had the power to recover established debts directly from debtors’ bank and building society accounts for 7 years, as a matter of principle, equity, and fairness it makes absolute sense that HMRC should modernize their approach so that the same power exists in relation to digital wallets.
Additionally, it is still unclear whether the authority sought would only extend to centralized entities where the individual does not control their private key or would go to decentralized entities as well. However, it is important to consider that non-custodial wallets are generally immune from government seizure without the consent of the owner. The HMRC said:
We will consider the issues raised in relation to practically implementing this proposal in a future consultation and ensure that safeguards are taken into account in any policy development going forward.
Reportedly, the government is keen on advancing this proposal further. The next phase will involve engaging with external stakeholders, such as digital wallet operators, to gauge their interest and identify any potential obstacles that may arise during implementation. Sources suggest that in any future consultation, the government plans to address the raised concerns regarding the implementation of the proposal.
The recent development comes as the UK is speedily progressing towards crypto regulations and industry enthusiasts are eagerly looking forward to it. In a recent interview, Andrew Griffith, financial secretary to the UK Treasury, said that regulations in the country are set to solidify within the next 12 months or so besides his promise of a timely and sensible regulation.
Notably, the UK’s Financial Services and Markets Bill (FSMB) is bound to shape the forthcoming regulations for stablecoins and crypto assets in the country. In such an environment, it is expected that amendments will be made to the bill, leading to heightened compliance obligations for businesses operating in the crypto space.