In conversation with Tony Dhanjal, head of tax at Koiny.
Young entrepreneurs are looking for new business ventures, profit diversification and investment channels to keep their business afloat and growing. We are seeing more and more small to large businesses explore investing in crypto. Whether it is keeping some of the company assets in crypto or warning to offer “getting paid in crypto” for the employees, there are legal obligations a business must confirm when conducting business operations in crypto. We sat down with Tony Dhanjal, an accountant and head of tax at a cryptocurrency calculator Koinly, an expert on the crypto tax topic, to ask him some key questions entrepreneurs exploring crypto ventures are often struggling to find the answers for.
Hi Tony, thanks for agreeing to speak with us. Let’s dive in. An increasing number of companies in the US and the UK are starting to integrate crypto into their finances – from a regulatory perspective, can they treat it the same if they held fiat?
Tony Dhanjal: In short, not really. Fiat currency like the US Dollar and GBP sterling is legal tender. It is government backed money and an accepted medium of exchange. There is an established regulatory framework. Crypto on the other hand is considered an asset, like property. And from a regulatory perspective, Crypto, at the present moment, is unregulated whether in the US or UK. Neither is it legal tender – it is still predominantly seen as a speculative investment asset, although the practical utility, that is its use as a medium of exchange to buy and sell goods & services is gaining traction.
So do businesses need to report crypto they hold?
Tony Dhanjal: Generally, yes they do.. For the larger institutional businesses, there will be accounting reporting requirements – quite often monthly or quarterly – this is where Crypto assets need to be reported in the management and financial statements -, much the same as other assets like stocks & shares and property. And then there is tax reporting – if there has been a crystalised Crypto gain or loss, these have to be reported as part of the business or company tax calculations. For the smaller business, reporting requirements in the main, are mandatory once a year – this included tax reporting for Crypto in businesses too.
And if you don’t mind us asking for your personal opinion, in your view, is holding and operating in crypto the future of successful businesses?
Tony Dhanjal: I don’t believe the holding and operating in Crypto per se, will be the future of a successful business.There are many factors and variables that need to align for a business to ultimately become a success. However, I do believe that businesses will need to be involved in, or have some exposure to Crypto, from either an investment or utility perspective. Similar to when the internet (Web 1.0 and 2.0) was evolving back in the noughties – in the early days, the majority of businesses did all their marketing offline – but over time, those that did not embrace the internet, generally got left behind.
We’ve all seen how volatile crypto can be. If a business holds crypto that appreciates in value, do they need to report it and is it taxable?
Tony Dhanjal: Only if they ‘dispose’ of their Crypto, and create a taxable gain or loss, then they are required to report it to their relevant tax agency. If they simply hold it, and it appreciates/depreciates on paper, then these are known as ‘unrealised gains or losses’ and are non-taxable. Unrealised gains/losses do not need to be reported to the tax office.
What about making a loss on crypto as a business, could this impact how much tax is due for profit?
Tony Dhanjal: Yes, similar to how an individual investor can use losses to offset against gains in most instances, and reduce their overall tax bill – business and companies can do the same to reduce their business/company tax bill. In fact, there is probably more scope for tax planning with losses for larger companies, in comparison to individuals and smaller businesses.
Interesting, Let’s move more to the employee side of things. Getting paid in crypto is a hot and trending topic right now. Do you see more businesses opening up to crypto and putting willing employees on the crypto payroll?
Tony Dhanjal: Yes I do. But for this trend to become a reality amongst the masses, it will take time – plenty of it. New start-ups (particularly Crypto ones) and tech based companies will lead the way in paying willing employees, if not all employees in Crypto – whether in part or full – whilst more traditional institutions and employers will observe the market first before they adopt this practice – they don’t usually like to rock the boat, unless they under pressure to do so.
When it comes to getting paid your salary or pension contributions, there is a very low risk appetite – most employees rely upon their salary for regular expenses to maintain a living and therefore need certainly – the last thing they want is a risky asset like Crypto devaluing their hard earned labour, due to market volatility. Granted, their Crypto could rise in their favour, but like red or black on a roulette table, it’s still a gamble in the proverbial sense.
What about an employer perspective? In many countries it is the employer who makes the tax and insurance deductions to employees’ pay. How does that work in terms of being paid in crypto? Is tax and insurance still payable on crypto income? Who makes the deductions?
Tony Dhanjal: Firstly, if an employee is paid their salary/wages in Crypto, it is subject to ‘income tax’ and in some regions, insurance/social security deductions. The employer as an agent on behalf of the relevant tax office, is still responsible for ensuring the deductions are made at source and to make the appropriate tax and insurance liability payment to the relevant tax agency – this is normally done using a piece of specialist payroll software – what’s more, the employer will have to pay across any taxes and insurance payments in fiat currency, as no tax agency across the world, at present, accepts payment in Crypto.
A lot of people are using Koinly to report and calculate personal crypto tax. Can businesses use Koinly as well? If not, is this a solution Koinly plans to develop in the future?
Tony Dhanjal: Yes, businesses can use Koinly too. Whether you trade your Crypto personally or through a business, it still needs to be aggregated and tracked. Particularly more so for businesses, as they often have additional reporting requirements – they will need to know the position of their Crypto in terms of current valuation, unrealised gains or losses, and more – more frequently than an individual. And if you are in a region like the UK, Koinly accommodates the accounting rules prevalent to Crypto, specific to businesses, which differs from individual investors.
Thank you for your responses Tony! I am sure our readers will derive a lot of value from this. Some great insights, and I am sure your expertise will help some great entrepreneurial minds make wherever decision is right for their business when it comes to conducting business in crypto.