Accountancy is fundamentally based around financial transactions, so any move towards the use of cryptocurrencies by businesses, individuals or even governments is likely to have significant ramifications for the profession.
“Cryptocurrencies have been growing in popularity in recent years, and many people have at least heard of the main player Bitcoin, even if they don’t fully understand the intricacies of how it operates,” says Ed Molyneux, CEO and co-founder of FreeAgent. “But there are hundreds of lesser known digital currencies – such as Litecoin, Ethereum and Ripple – which are becoming more prevalent.”
The use of cryptocurrency for purchasing goods or services is still in its infancy but it is slowly increasing as an established method of payment. “For example, PwC has already taken its first payment in Bitcoin and many online retailers like Expedia allow customers to pay in Bitcoins,” adds Molyneux.
Most Fortune 500 businesses are currently in the research and development stage of adopting cryptocurrencies, says Gavin Pannu, a certified financial technicial and market analyst and trading mentor at London Academy of Trading. “Recently, Santander bank has integrated Blockchain technology and carried out the first crypto payment from an institutional bank,” he says. They are also on the verge of launching a cryptocurrency payment app using Ripple.”
Why businesses are adopting the use of rypto
One of the obvious areas for businesses in general to adopt the use of crypto is as an incentive for customers to do or buy something. “Clients could be incentivised to participate to answer questionnaires by paying a reward in crypto right after sending the questionnaire, or by having the client receive crypto as a premium for his or her participation to an activity for the entity, for example a review or allowing to share data and other information,” says Lars Schlichting, CEO of Poseidon Group, which runs Eidoo, a multi-currency wallet and hybrid exchange for blockchain assets.
Colin Hewitt, CEO and founder of cashflow forecasting software company Float, also raises the possibility of cryptocurrencies being used as a form of payment for staff salaries. “With the availability of goods on Amazon nowadays, it’s not unrealistic to think that pay cheques could be paid, even in part, with an Amazon cryptocurrency,” he says. “A move to issuing cryptocurrency as part of salaries would change the way we deal with banking for ever. If this were to happen, for the whole accounting industry it would be a massive challenge, and an even greater opportunity.”
The implications of cryptocurrencies for accountants
Any widespread use of cryptocurrencies would have implications for accountants, both in how they operate their own businesses and also in the services they provide for clients. From a financial reporting perspective, Pannu says the best advice to give is to ensure they keep accurate records, so they can comply with taxation requirements.
“When buying cryptos, nothing is expected of you at the point of sale,” he points out. “Tax is liable on the profit made when you sell something that has increased in value, which is known as capital gains tax. The annual tax-free allowance for an individual’s asset gains is £11,700 for 2018/19. If the profit from selling your cryptocurrency in addition to any other asset gains is less than this, you won’t have to report or pay tax on it. However, if you sell up to four times the annual allowance (£46,800 for 2018/19) of crypto assets, even if you make a profit of less than £11,700, you have to report this sale to HMRC.”
Aside from the accounting treatment, advisers and accountants should also be highlighting the dangers that could come from using such currencies. “The lack of regulation in the cryptocurrency world has led to a significant rise in criminals using these digital monies to launder money and commit financial crime,” says Michael Harris, director, financial crime compliance at LexisNexis Risk Solutions.
“Accounting firms have a duty to ensure that clients engaged in cryptocurrency transactions are subject to enhanced due diligence measures. Screening against high quality sanctions, politically exposed persons and adverse media are the minimum level of regular due diligence which should be implemented, and accountants should be conducting additional checks when appropriate.”
Accountants must be ready to act as advisors
In the longer-term, there’s potential for cryptocurrencies to help manage currency fluctuations, believes Hewitt, although any such strategy will need to come with a health warning. “As the US introduces tariffs on importing goods and the threat of trade wars escalates, businesses that operate overseas could use cryptocurrencies as a way of reducing risk,” he adds.
“Accountants must be ready to help clients explore these potential scenarios. Providing advisory services and being proactive with their planning and forecasting is so important now for the accounting profession. Cryptocurrencies may increasingly be a part of this conversation, so accountants need to be prepared.”
Accountants may also benefit from an increased use of blockchain, the underlying technology on which Bitcoin is based, says Schlichting: “By using cryptocurrencies, accountants could download all transactional data from blockchain, simplifying their work, but also having algorithms doing the work of the accountant at the end.”
Factoring cryptocurrencies into software packages
In time, any widespread use of cryptocurrencies would also need to be factored into software packages; something that is more easily done in the age of cloud-based accounting. Thus far, the larger providers have yet to look at this, says Molyneux, but smaller start-up apps and specialist tech companies are starting to do so.
“Should crypto-payments start to skyrocket in popularity, it’s likely that larger software providers will have to either build cryptocurrencies into their own software or integrate with those smaller apps that offer the functionality,” he predicts.
How the use of cryptocurrencies will develop over the next few years is still unclear. Research by FreeAgent found 27 per cent of accountants believe they will be doing at least some work involving these in five years’ time, although just 2 per cent believe it will be widespread by then.
It is likely, however, that the direction of travel is only going to be one-way, despite the frequent falls in the value of Bitcoin. Gabriel Fransisco, a consultant for TMT Blockchain Fund, points to other currencies such as EOS, AION and Tezos as ones which might survive what he predicts will be a “purge”, paving the way for greater adoption in the longer term.
“The potential use cases for cryptocurrencies are daunting, decentralising and disrupting absolutely every aspect of human life and interaction on this planet,” he claims. “To merely look at the financial revolution that will take place due to blockchain technology is to miss the greater potential paradigm shift. Safe and secure business transactions and staff payments are the only the beginning of the beginning; a scratch on the surface.”
Nick Martindale is a freelance journalist, editor and copywriter. He regularly contributes to a wide range of national and business media, including The Telegraph, Raconteur supplements in The Times and HR magazine.