Recently, we were very pleased to be engaged by Martian Premier League (MPL) to provide advice on their exciting development in the crypto space.
Integrated World on the Blockchain
MPL’s team are developing an integrated fictional world which will exist on the blockchain. The first instalment in that world will be the Martian Premier League game and many other games and applications are planned to follow, all drawing from the same world lore.
The game will be a football manager style game, though its USP will be that the code for the game will run on the blockchain, entirely transparently. Indeed, the aim of the team is for the code to be open source so that anyone can build their own games and applications on the blockchain.
Uncertainties and Tax Opportunities
We have been engaged to help MPL navigate the novel tax problems that they will face as a business in the UK. And the opportunities seem to be as great as the uncertainties!
The first step for MPL was to issue 10,000 ‘genesis’ NFT’s (see our article “Cryptopunk a nifty little problem” for some more information on the nature of NFT’s). Each was listed for sale at 0.88 ETH. They sold out within 3 hours, grossing around £2 million in instant revenue.
VAT – No HMRC Guidance
That means that the first problem we are helping MPL to solve is that of their VAT position. As a UK company, MPL raced past the ‘backward look’ test, surpassing £85,000 in an incredibly short space of time. Arguably, MPL should have known that they would have met the ‘forward look’ test as well.
Fortunately, we are already ahead of the curve on this and already have a number of clients generating substantial sums from the sale of NFT’s. A common problem faced by them is that the purchaser is anonymous and there is no practicable means of ascertaining who they are, or where they are in the World. That is the nature of the blockchain.
We have a working position on this and are already in deep dialogue with HMRC who are taking their time to consider their position. HMRC guidance does not touch on this issue at all and we speculate that HMRC may be looking at this point afresh, with a view to updating their own position and thereafter, their guidance. We observe that the legislation leaves significant questions unanswered when it is applied to certain transactions on the blockchain.
Further down the line, purchasers of the genesis NFT’s will be entitled to a physical copy of a first edition comic. This could mean that the whereabouts and identity of some purchasers of genesis NFT’s could become known. Or it might not… the NFT could have been sold on to another person (who would then be entitled to the giveaway). Or the owner of the NFT might not opt to receive the comic. We are grappling with how this may impact on the VAT position.
Research and Development
Further down the line, MPL are doing a great deal of work on innovative game mechanics, which will operate directly on the blockchain. Naturally, we are exploring the opportunities for R&D. We are further exploring the interaction between capital allowances and blockchain infrastructure and assets and see some very interesting opportunities there.
In the longer term, we naturally wish MPL every success. With great success often comes significant profit and growth and it goes without question that we would be pleased to guide MPL and others in this space in structuring their growth to better further the long term aims of the business.
If you need any help with your crypto assists or in relation to any other tax matters then please get in touch.
For further resource on crypto assets please see www.cryptotaxdegens.com.
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