The celebrated Ethereum Merge event reportedly could cause tax confusion in the United Kingdom (UK) disrupting its momentum to become a global leader in the crypto sector.
Ethereum holders have the option to stake their tokens on the blockchain to help validate transactions and gain rewards. They can potentially earn up to 5.2% of the coins they stake.
With the most recent Merge, the concept of staking might become more widely accepted given that Ethereum has numerous holders. There would be a lot of Ethereum owners who would want to stake their tokens.
Also Read: What’s Next After the Ethereum Merge?
According to a Bloomberg report, this might spell major calamity for the UK. The UK has already published instructions on how cryptocurrency users should handle staking when submitting tax returns.
It could be difficult for the staking users in the UK to know what to report and pay to the government as the Merge triggered an increase in the percentage of earnings they can generate by staking.
Another issue is that the majority of Brits are exempted from filing yearly tax returns. If those who engage in staking are required to file annual tax returns, this puts further stress on tax authorities.
According to David Wren, a tax executive at EY, asking those who are into staking to file annual returns for cryptocurrency would put tax officials under a lot of stress.
The UK’s tax regulations for staking were released seven months ago. It will be challenging for the UK to advance over jurisdictions in terms of crypto legislation given the current issue with submitting tax returns for cryptocurrency.
According to a report from Staking Rewards, 12% of Ethereum is now in use, or around $25.2 billion is held in staking wallets. This demonstrates how more Ethereum users are staking their tokens in order to generate passive income.
Additionally, the UK’s HM Revenue and Customs updated its regulatory framework for crypto assets at the start of the year and decentralized financing is now part of the framework (DeFi).
The DeFi industry, where investors lend, borrow, and exchange digital tokens, heavily rely on staking. Investors are urged by the new guidelines to take into account the terms of platforms that provide staking services.
They would be required to pay additional levies based on these circumstances. The HMRC claimed that if a staking platform uses a user’s token, the platform gains from the tokens. As a result, the agent would consider it a disposal, which would trigger capital gains tax. This is probably true for anyone who stakes their Ethereum tokens.
One of the tax directors at KPMG UK, Jonathan Peall and Wren, stated that these exchanges typically combine the tokens of different users to carry out certain tasks. Additionally, the exchanges don’t provide the time periods when the tokens will be returned to the owners.
The guidelines said that it would not consider staking earnings as interest. This is because the UK does not regard crypto assets as legal tender or currency.
Therefore, stakers in the UK will have to pay an income tax on their staking earnings and the tax can be up to about 45%.
In the UK, people do not file returns except there are earnings from their investments. This shows that most people are unaware they must submit returns in staking cases.
Also Read: All About Ethereum Staking
