Experts predict that the UK government can suffer from limitless losses if businesses that accept payments in the form of cryptocurrencies go bust. More and more companies, such as the office-sharing space WeWork, and ethical cosmetics brand Lush, have begun accepting crypto payments for services and goods.
Although crypto enthusiasts have welcomed the shift, experts explain that it provides directors a convenient way to hide their money from authorities, especially when they go bust. A managing director at Begbies Traynor, an insolvency firm, stated that the increasing popularity of accepting crypto payments will make it difficult for administrators- who need to wind down a business once it fails- to track down where money was coming from, and if owners or staff are taking money from the business illegally.
This implies that criminals could end up stealing income that’s usually taken back and distributed among creditors, which includes local authorities and HM Revenue and Customs tax collectors. Without thorough regulations and new tax plans, the government could wind up facing immense losses. Depending on how popular cryptocurrencies become, the potential for such criminal activity is endless.
This is just the latest threat among an emerging wave of issues related to the increasing adoption of cryptocurrencies, which have been found linked to black market trades and money laundering schemes.
Traditionally, criminals looking to hide their money from administrators and tax collectors had to undergo the arduous process of establishing an investment vehicle to conceal their wealth. One such example is an offshore trust. Now, it’s much easier for criminals and small businesses to take crypto payments through online virtual wallets.
At least when they used trusts, authorities could see the source of the money and where it went. In contrast, cryptocurrencies are even more difficult to track down, so there are very few chances of successfully tracing back the money and seeing how much has been stolen.
Insolvency professionals can’t do anything on their own to tackle the growing issue. They believe that the UK government should take preventative action by enforcing regulations that make sure cryptocurrencies undergo thorough regulations and are taxed properly. However, it will be a while before any such law is implemented, considering that the UK is behind the US on the issue of criminals using crypto assets to hide their wealth.
If the government fails to take appropriate measures, it risks major losses of income tax revenue. HM Revenue and Customers, HMRC, stated that it released a manual recently, explaining the tax consequences of various crypto-asset transactions. Meanwhile, the Treasury is evaluating evidence provided through consultations on how cryptocurrencies can be regulated. This review is taking place at the same time as the Bank of England considers the possibility of integrating digital currencies into the country’s monetary system.