ABC Ltd v Revenue and Customs Commissioners

JUDGMENT

Lady Arden (with whom Lord Reed and Lord Hodge agree)

1. This appeal concerns the tax treatment of profits derived from the trading of cryptocurrencies. It raises a question of considerable importance given the growth of the digital asset market.

2. The appellant, ABC Ltd, is a company incorporated in England which carried on a business of buying and selling Bitcoin and other cryptocurrencies between 2017 and 2021. During this period, it realised profits of approximately £45 million.

The Issue

3. HMRC assessed the profits to corporation tax on the basis that they constituted trading profits within the meaning of the Corporation Tax Act 2009. The appellant contends that the profits are capital gains and should be taxed at the lower rate applicable to chargeable gains.

Analysis

4. The distinction between trading profits and capital gains depends on the nature of the activity. The badges of trade, as developed in the case law, provide the framework for this analysis.

5. Applying the badges of trade to the facts of this case, I conclude that the appellant was carrying on a trade. The frequency and volume of transactions, the short holding periods, and the sophisticated trading strategies employed all point clearly to trading rather than investment activity.

6. As to the classification of cryptocurrencies themselves, they are property for tax purposes. They are not currency, but neither are they tangible property. They are a species of intangible property, analogous to other chargeable assets.

Conclusion

7. The appeal is dismissed. The profits are trading profits subject to corporation tax at the full rate.