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CRYPTOCURRENCY TAX

Cryptocurrency is today's money

Investing and trading in cryptocurrency has become increasingly popular over the last few years. However very few have taken a step back to consider the tax implications involved.

This rapid growth has also attracted notable attention from HMRC, who are eager to ensure that all businesses, investors and traders are paying the correct amount of tax on cryptoassets. It is important that anyone active in this sector has their tax affairs structured correctly, in a tax efficient way, whist remaining compliant with HMRC. This will help to avoid any penalties and fines as well as unplanned tax bills.

How we can help you

Advice

Planning

Compitance

Support

Advice

Our experienced specialists can advise you on the tax implications of buying and selling cryptocurrencies, mining, arbitraging exchanges and margin trading.

Planning

From new crypto wealth to growing blockchain businesses, we can help you with tax-efficient planning and company structuring.

Compliance

We’ll clarify exactly what disclosures you should make to HMRC and when, giving you peace of mind that you’re complying fully with the law.

Support

Our experience of helping 100s of clients with cryptoassets means we can cut through the confusion and answer your tax queries in plain English.

Cryptocurrencies are virtual or digital currencies that use cryptographic functions to carry out financial transactions and are not controlled by any central authority. They leverage blockchain technology to gain this decentralisation.

Cryptoassets are the assets that are stored on distributed ledgers. This not only includes all cryptocurrencies but also non-currency assets such as utility tokens and security tokens.

HMRC does not deem the buying and selling of cryptoassets to be the same as gambling. Depending upon how cryptoassets are held, Capital Gains Tax, Income Tax and Inheritance tax can all apply.

Mostly, people hold cryptoassets as personal investments, typically for capital appreciation or to make specific purchases. Capital Gains Tax may be liable, when cryptoassets are disposed.

You will also usually be liable for Income Tax and National Insurance contributions on cryptoassets held by individuals, when they are received from either:
– An employer as a form of (non-cash) payment, or
– From airdrops, transaction confirmation or mining

For the purpose of Inheritance tax, Cryptoassets are treated as property.

When individuals buy and sell cryptoassets, depending on the frequency and value involved, this is usually seen as an investment activity and any gains made are potentially subject to capital gains tax. There is an annual exemption, but if this is exceeded (including the selling of other assets such as shares or property), tax will need to be paid.
It is a mistake to believe that only when you sell a cryptoasset for money, say in pounds sterling, that this is when it becomes a gain and therefore liable for capital gains tax. A gain can also arise when cryptoassets are exchanged – say from Cardano to Tezos or Bitcoin to Ethereum or if crytoassets are gifted to another person or when they are used to pay for goods and services. This calculation can be complicated, particularly if you have other assets that you are also disposing of during the tax year. Our team can help accurately calculate the gain, prepare the tax return, and assist with effective tax planning to make sure it is as tax efficient as possible.

Income tax and national insurance become liable on the value of the asset when certain criteria are met and include common instances such as:

– Cryptoasset mining
– Airdrops
– Remuneration from employers
– Yield Farming

A disposal of your cryptoassests for tax purposes will occur when;

– There is a sale of your cryptoassets
– Exchange your tokens for another type of cryptoasset
– Use your crypto to pay for goods or services
– Gift your cryptoassets to another person

If HMRC considers your activities to be a trade, rather than investing, then you will be taxed as if you are running a business and income tax will be due.

There are a number of factors that influence this decision, and it can be complicated. It is therefore important that professional advice is sought from specialist cryptocurrency accountants.

When receiving cryptoassets as rewards for mining it will depend on the level of reward, how active you are and from whom you are receiving the assets whether you fall into taxable trade and are therefore liable for income tax. Again, this is a complex area and advice should be sought at an early opportunity. On top of this, if cryptoassets are kept and then disposed of later these are also then liable for capital gains tax (if gain is above the allowance for the tax year). Again, careful tax planning is advised – and we can help.
If the activity does not amount to a trade, the pound sterling value at the time of receipt of any tokens awarded will be taxable as income (miscellaneous income) with any appropriate expenses reducing the amount chargeable. Any future disposal of rewarded assets are then liable to Capital Gains Tax.

HMRC can ask you produce the below information in a check of your tax affairs so records of all of the below should be retained;

– type of tokens
– date you disposed of them
– number of tokens you’ve disposed of
– number of tokens you have left
– value of the tokens in pound sterling
– bank statements and wallet addresses
– a record of the pooled costs before and after you disposed of them.

HMRC have been using its information-gathering powers to retrieve lists of investors from various exchanges over the past few years. HMRC have sent ‘nudge’ letters to investors if you have received a letter please feel free to contact one of our experts to discuss.

DO MORE WITH YOUR CRYPTO

We also now accept Bitcoin as a fee payment.

Want to know more or need a quote?

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