Due to recent updates to Her Majesty’s Revenue and Customs (HMRC) regulations, all cryptocurrency exchanges operating in the United Kingdom will henceforth be levied as stated by the newly introduced digital services tax.

Telegraph reports that UK exchanges will be required to pay a digital service tax of 2%.

Britain’s tax authority HMRC insists that exchanges are not eligible for financial exemptions because digital assets do not qualify as financial instruments.

The digital services tax on revenue was introduced back in April 2020 targeting social media and tech giants such as Facebook (NASDAQ:) and Google (NASDAQ:), while the HMRC included cryptocurrency exchanges under the Treasury’s tech tax on Nov. 28.

The latest setback for crypto exchanges stems from the HMRC’s classification of crypto assets. According to the regulator:

You can find many different crypto assets with different features. The exemption from online financial markets for crypto-assets is not possible because they do not contain commodities, money or financial contracts.

CryptoUK, the trade organization representing the UK’s digital asset sector, said that taxation is unjustifiable and will likely be extended to both traders and investors.

Ian Taylor, executive director of the Crypto Sector, stressed that cryptocurrencies can be treated as separate entities to other financial instruments like stocks and commodities. The industry is still trying adjust to the difficult licensing system that was introduced by Financial Conduct Authority.

Since January, all UK-based cryptocurrency asset companies must comply with AML regulations (anti-money laundering).

The FCA banned crypto derivatives in January. The FCA also advised consumers not to transact with any 111 unregistered crypto companies.

HMRC also increased efforts to catch tax-defeating crypto investors by making it mandatory that self-assessment forms include information about digital asset holdings. Meanwhile, Britain’s tax authorities requested several crypto-asset exchanges to hand over details on customers from transactions and holdings in August 2019.

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