According to an insolvency expert, the UK government could suffer from ‘limitless’ losses because of businesses that accept payments in untraceable and untaxed cryptocurrencies crashing down. There is an increasing number of companies, including the office-sharing firm WeWork and ethical cosmetics firm Lush that have started taking payments in cryptocurrencies, such as Bitcoin, for their goods and services, along with cash, debit and credit. While cryptocurrency enthusiasts have welcomed this change, experts have warned that this could turn out to be an easy way for directors to conceal cash from the authorities, especially when these companies go bankrupt.
Managing director at Begbies Traynor, an insolvency firm, Julie Palmer said that the increasing popularity of crypto payments would make it difficult for administrators to track where the money is from and whether directors, staff, or owners are stripping the business of funds illegally. The administrators are the ones who have the responsibility of winding down a business when it goes bust. This means that criminals would be able to walk away with income that could usually be collected and used to pay off creditors, including local authorities and the tax collectors at HM Revenue and Customs.
Palmer stated that the government would have to deal with huge losses if they don’t come up with new taxation plans and regulations. She said that depending on the popularity, the potential could be limitless. This is the latest threat to have surfaced from the increasing popularity of cryptocurrencies, which have been linked to black market dealings and money laundering. Criminals who wanted to conceal their money from administrators and tax collectors traditionally had to deal with an onerous process of establishing an investment vehicle, like an offshore trust, for doing so. In recent years, tradespeople, small businesses have criminals have found it easier to accept payments in cryptocurrency.
After all, they only need to set up a ‘virtual wallet’ online. Palmer said that trusts allowed them to see where the money had gone, but cryptocurrencies are harder to trace, so there is less chance of being able to track the money and find if it has been taken out. She said that the insolvency profession couldn’t do anything for tackling the issue on its own and said that the UK authorities are behind the US on this issue. She added that they need to take action and introduce laws for ensuring crypto assets are properly regulated and taxed. In fact, she went on to say that it was a major loss of income tax revenue.
As per HMRC, they recently released a manual that outlines the consequences of various types of crypto transactions. A spokesperson for the HMRC said that they take action, which includes using the power provided by the parliament for gathering data from a number of resources in order to identify and then investigate those who haven’t declared their income and gains, which include individuals operating in the economy to sophisticated and organized crime groups as well as offshore structures.
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