The government could face “limitless” losses as a result of businesses that accept payments in untaxed and untraceable cryptocurrencies going bust, an insolvency expert has warned.
A growing number of companies, including the ethical cosmetics firm Lush and office-sharing firm WeWork, have begun taking payments for goods and services in cryptocurrencies such as bitcoin, alongside debit payments, credit or cash.
But while the shift has been welcomed by crypto-enthusiasts, experts said it could be an easy way for directors to hide cash from authorities, particularly when companies go bust.
Julie Palmer, a managing director at insolvency firm Begbies Traynor, said the growing popularity of cryptocurrency payments would make it harder for administrators – who are in charge of winding down a business after it fails – to track where money has come from, and whether owners, staff or directors are stripping funds out of the business illegally.
It means criminals could walk away with income that would usually be clawed back and distributed to creditors, including the tax collectors at HM Revenue and Customs and local authorities.
Palmer said that without new regulations and taxation plans, the government could face huge losses. She warned:
“The potential is limitless, depending on how popular this becomes.”
Palmer said there was nothing the insolvency profession could do to tackle the issue on its own and believes UK authorities – who are a “year or two behind” the US on the issue – should take action and introduce laws to ensure crypto-assets are properly regulated and taxed. She said:
“It’s potentially a major loss of income tax revenue.”
The Treasury is reviewing evidence from a consultation on how to regulate crypto-assets.
The review is taking place at the same time as the Bank of England and the Treasury weigh up the possibility of digital assets being integrated into the UK’s monetary system, potentially via a Bank-issued asset sometimes dubbed “Britcoin”.
While the Bank has signalled that it is open to the idea, its chief economist Andy Haldane has dismissed as fanciful the idea that existing cryptocurrencies such as bitcoin could become a standard payments mechanism.