In recent years, cryptocurrencies and NFTs have gained significant attention and value, making them an attractive option for donations and fundraising for charities. Cryptoassets have the potential to provide new opportunities for charities to raise funds, but it is important to understand the risks associated with them before deciding whether to accept donations or use them for fundraising.
By Chris Davies
Cryptoassets are digital representations of value or rights that use blockchain technology. Cryptocurrencies, such as Bitcoin, Ethereum, and Binance Coin, are a common form of cryptoasset, but there are many others. These currencies are stored online on a blockchain, a digital ledger that records who owns each cryptoasset and when they are transferred.
On the other hand, NFTs are digital assets that link ownership to unique physical or digital items, such as works of art, real estate, music, or videos. NFTs are stored on a blockchain as well, and “non-fungible” means they are unique and not replaceable.
While cryptoassets may seem like an attractive way to raise funds, there are risks involved. The value of cryptoassets can change quickly, making them volatile. Additionally, there is the potential for fraud or theft by hackers, and they lack protection compared to traditional currencies or financial products because they are largely unregulated. It’s important to note that laws on cryptoassets vary between countries, and they are banned in some countries, while others have complex regulatory requirements.
It can be difficult to trace the donors or the original source of funds from donors, and their current limited use amongst retailers does present Charities with a problem of how to store or convert them.
There are also environmental concerns related to the use of cryptoassets and blockchain technology. Many of them use a lot of energy, which can have a negative impact on the environment. Charities should check how this fits with any environmental, social, and governance policy they may have.
Despite these risks, if a charity decides to accept donations of cryptoassets or use NFTs for fundraising, they should adopt a policy on accepting, refusing, and using cryptoassets. This should include how to make decisions about converting them to traditional currency. It’s also important to ensure that the platform being used is compliant with UK regulations and registered with the FCA for anti-money laundering and counterterrorism as required if the charity is receiving donations directly in its crypto wallet.
Keeping accurate records of donations, storage, and use is essential. Charities should also follow HMRC’s guidance on the taxation of cryptoassets and remember that they cannot claim Gift Aid on any cryptoassets. It’s essential to regularly review policies related to cryptoassets and consider the benefits and risks of accepting cryptocurrency versus traditional currency.
In conclusion, cryptoassets have the potential to provide new opportunities for charities to raise funds, but they come with risks. It’s essential to carefully manage these risks by adopting policies, keeping accurate records, and following guidance from HMRC and regulatory bodies. By doing so, charities can leverage the opportunities provided by cryptoassets while safeguarding their resources and ensuring their financial stability.
Next steps
As an firm of accountants which specialises in charities, and has specialists in crypto tax, we are well placed to help you with crypto now and in the future. Do get in touch if you’re looking for help.
