HMRC was one of the first tax administrations in the world to issue explicit instructions on cryptocurrency taxation in the United Kingdom. In the United Kingdom, cryptocurrency is subject to either Income Tax or Capital Gains Tax, depending on the amount invested. In our complete UK crypto tax guide for 2023, we’ve got everything you need to know about crypto tax in the UK, including crypto capital gains tax, crypto income tax, how UK crypto exchanges function with HMRC, how to avoid paying tax on cryptocurrency in the UK, and more.
First and foremost, do you pay tax on cryptocurrency in the United Kingdom?
Yes. In the United Kingdom, cryptocurrency is subject to taxation.
However, HMRC does not consider cryptocurrencies to be a legitimate currency in the same way that the British pound does. Instead, it’s viewed as a property, which is a type of capital asset like a rental home or a stock.
Why does it matter how HMRC views cryptocurrency?
Because this clarifies how cryptocurrency is taxed in the United Kingdom.
Yes – HMRC can track cryptocurrency.
HMRC stated a few years ago that they were collaborating with prominent crypto exchanges to share consumer data obtained from Know Your Customer records. They’re utilising this information to send nudge letters to crypto investors, reminding them to report bitcoin to HMRC, and to contact investors they feel are dodging HMRC cryptocurrency taxes.
But what about your personal cryptocurrency exchange in the United Kingdom? Is Binance required to file tax returns with HMRC? What about HMRC and Coinbase? Which cryptocurrency exchanges are required to file tax returns with HMRC?
HMRC announced in 2019 that they have contacted cryptocurrency exchanges doing business in the UK, including Coinbase, eToro, and CEX, to collect user data. So yet, they’ve just mentioned these two crypto exchanges. Before you exhale a sigh of relief, keep in mind that just because HMRC hasn’t mentioned your crypto exchange doesn’t mean they haven’t contacted them. HMRC is tightening down on cryptocurrency, therefore it’s safe to presume they’ve contacted all the big cryptocurrency exchanges operating in the UK, including Binance, Kraken, KuCoin, Gemini, CoinJar, Crypto.com, Bittrex, and Gate.io.
You may recall that Coinbase provided data on UK customers who transacted more than £5000 in cryptocurrency between 2017 and 2019 in 2020.
In the United Kingdom, there is no Bitcoin or cryptocurrency tax. Instead, your cryptocurrency will be subject to either Capital Gains Tax or Income Tax.
The crypto tax you’ll have to pay is determined by the specific transactions you make with your cryptocurrency. If you are found to be earning money, you must pay income tax. If you are found to have made a capital gain, you must pay Capital Gains Tax.
We’ll look at both.
Because HMRC considers cryptocurrency to be a capital asset, you must pay Capital Gains Tax when you sell it. Crypto disposal methods include:
As a result, whenever you sell, trade, spend, or gift cryptocurrency in the UK, you will be subject to Capital Gains Tax.
Don’t worry, you won’t have to pay tax on the entire amount when you sell something. You’ll only be taxed on cryptocurrency gains, so whenever you make a profit.
No, it does not. When it comes to capital gains, HMRC is quite generous, providing every UK taxpayer with a Capital Gains Tax Allowance of £12,300. We’ll go into more detail later, but this means you’ll only pay Capital Gains Tax on capital gains that exceed your £12,300 allowance.
Let’s look at how much Capital Gains Tax you’ll have to pay on your cryptocurrency.
Unlike many other countries, the United Kingdom does not have separate rates for short-term and long-term capital gains. Capital gains are all taxed at the same rates. The amount of Capital Gains Tax you will pay is determined by your earnings.
To calculate tax on cryptocurrency gains, you must first determine your cost basis.
Your cost basis is the amount you paid for your cryptocurrency plus any transaction fees. If you obtained your cryptocurrency through another means, such as an airdrop or fork, you would use the fair market value of the cryptocurrency on the day you received it in GBP as your cost basis instead.
It’s simple to calculate your capital gain or loss once you know your cost basis. A capital gain or loss is the difference in value between when you acquired the asset and when you sold, swapped, spent, or gifted it. Subtract your cost basis from the price you paid for the asset. Subtract your cost basis from the fair market value of the asset on the day you disposed of it if you spent, swapped, or gifted it.
If you make a profit, you have a capital gain and must pay Capital Gains Tax on it. If you have a loss, you have a capital loss, and you will not have to pay Capital Gains Tax on it – but you should keep track of these because they can reduce your tax bill. We’ll go over this in more detail later, but first, let’s look at an example of calculating tax on a cryptocurrency capital gain.
UK crypto investors can pay less tax on crypto by making the most of tax breaks.
You will not have to pay Capital Gains Tax on any capital losses, but you should keep track of them because you can offset capital losses against capital gains to pay less tax overall.
In the United Kingdom, there is no limit to the size of a capital loss that can be offset against capital gains. This means you can use as many capital losses as you want to reduce your capital gains to the Capital Gains Tax free allowance amount of £12,300, resulting in no Capital Gains Tax.
You can carry forward your capital losses to the next fiscal year to offset against future gains if you’ve already offset enough capital losses to bring you back into the allowance amount. However, capital losses in the UK are only valid for four years. As a result, you can only carry forward a capital loss for a maximum of four years before it can no longer be used to offset capital gains.
HMRC has specific guidance on lost and stolen cryptocurrency.
Because the asset exists even if the private key is lost, lost crypto is not considered a disposal for Capital Gains Tax purposes. So, if you misplace your private key, you cannot claim it as a capital loss. However, if you can demonstrate that there is no possibility of recovering your private key and regaining access to your asset, you can make a negligible value claim. If your claim is successful, you will be able to claim your lost cryptocurrency as a capital loss.
Similarly, HMRC does not consider theft to be a disposal, so you cannot claim stolen crypto as a capital loss. This rule has a couple of very specific exceptions. For example, if you purchase cryptocurrency from an exchange but do not receive your asset, this could be considered a scam, and you could make a negligible value claim and later claim a capital loss.
Now that we’ve covered everything there is to know about crypto capital gains, let’s move on to crypto income and income tax.
In some cases, cryptocurrency is treated as income and thus subject to income tax. Cryptocurrency transactions classified as income are taxed at the same rate as your regular income tax bracket. In some cases, you may also be required to pay National Insurance contributions on your cryptocurrency earnings.
In the UK, crypto is taxed as Income when it comes from:
Getting paid in crypto – known as ‘money’s worth’ and is subject to National Insurance too.
Staking rewards
Mining tokens
Airdrops – in most instances.
These are the only transactions for which HMRC has specific guidance. Of course, the crypto space is constantly evolving, especially since the DeFi summer. DeFi protocols provide investors with more opportunities to profit than ever before. HMRC hasn’t issued specific guidance on how these transactions will be taxed, but that doesn’t mean you won’t have to pay tax on them. Instead, you must examine the current rules and deduce the likely taxation (ideally with the assistance of a crypto tax accountant!). Having said that, many DeFi crypto investments may be considered income and therefore subject to income tax. Examples of new ways to earn cryptocurrency from DeFi include:
In recent years, the crypto market has seen the rise of engage-to-earn and play-to-earn platforms. As previously stated, HMRC has not issued specific guidance on how crypto from these platforms will be viewed. However, because earning cryptocurrency through staking and mining is considered income, we can deduce that earning tokens and coins through these platforms is also likely to be considered income by HMRC. Here are some examples of potential crypto income:
To determine how much tax you will pay on crypto income, you must first understand the crypto Income Tax rates. These are the same Income Tax Bands that apply to your regular earnings. The Income Tax Bands in the United Kingdom for 2021-2022 are as follows:
Begin by determining your income tax bracket. Then, add your additional crypto income to your regular income to see if you’re still in the same Income Tax Band. If you are, this is the amount of tax you will pay on your cryptocurrency earnings. This is the amount of tax you’ll pay on your cryptocurrency if your additional income from it pushes you into a higher Income Tax Band.
It is critical to understand that you do not pay the same flat rate of Income Tax on all of your earnings. All English and Welsh taxpayers (except those earning more than £125,140) will receive a tax-free allowance of £12,570. Then you’ll pay 20% tax on your next £37,699 of income, 40% tax on your next £99,729 of income, and 45 percent tax on any income above this amount. As a result, you’ll pay tax on your cryptocurrency at a rate ranging from 0% to 45 percent.
When will Bitcoin be tax-free in the United Kingdom? What about alternative cryptocurrencies? Fortunately, you won’t always have to pay tax on your cryptocurrency in the UK.
You won’t pay tax on your crypto in the UK when you’re:
Buying crypto with GBP.
HODLing crypto.
Transferring crypto between your own wallets.
Gifting crypto to your spouse.
Donating crypto to charity.
Yes and no – it depends what you’re buying crypto with. Let’s break it down.
Buying crypto with GBP
When you buy crypto with fiat currency in the UK, such as GBP, you are not taxed.
However, it is critical that you keep detailed records of your crypto transactions in order to keep a detailed account of your cost basis. This ensures that you can accurately calculate your cryptocurrency gains and losses in the future.
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Buying and HODLing crypto
Are you waiting for the moon? Excellent strategy and good news for your taxes. You will not be taxed if you HODL cryptocurrency.
Again, keep track of how much it cost you to acquire your cryptocurrency so that you can accurately calculate your capital gains and losses later.
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Buying crypto with crypto
In the United Kingdom, cryptocurrency trading is taxed. So, if you exchange Bitcoin for Ether or another cryptocurrency, you’ll have to pay Capital Gains Tax. HMRC considers this to be too many separate transactions. Trading your asset, like selling or spending it, is a disposal. They’re not interested in the fact that you’re using it to acquire another asset; they’re only interested in the fact that you’re getting rid of one. So, if you make a profit, you must pay Capital Gains Tax on the asset you sell.
To calculate your capital gain, take the cost base of the cryptocurrency you sold and subtract it from the fair market value of that asset on the day you traded it for another cryptocurrency.
CAPITAL GAINS TAX
Buying crypto with stablecoins
Buying cryptocurrency with stablecoins is considered trading cryptocurrency for cryptocurrency, so any profits are subject to Capital Gains Tax.
Of course, you may not have to pay any taxes on these transactions because stablecoins are frequently pegged to a fiat currency and thus the price remains relatively stable, resulting in no capital gain or loss when you exchange stablecoins for another cryptocurrency.
Regardless, you must keep a record of these transactions for HMRC.
CAPITAL GAINS TAX
Yes – you’ll pay tax whenever you sell cryptocurrency in the UK. The amount you pay will vary depending on your income.
Selling crypto for GBP
Selling crypto for fiat currency, such as GBP, is considered a disposal and is subject to Capital Gains Tax.
Depending on how much you make on a regular basis, you’ll pay either 10% or 20% of the profits from your sale.
CAPITAL GAINS TAX
Selling crypto for crypto
Selling your crypto for another crypto is a disposal – so it’s subject to Capital Gains Tax.
To calculate your capital gain or loss, subtract the cost basis of the asset you disposed of from the fair market value of the asset on the day you traded it.
CAPITAL GAINS TAX
No! You should not pay tax on your cryptocurrency when transferring it between wallets or exchanges. However, when it comes to UK crypto tax, things are rarely this simple, and transactions such as transfer fees or adding and removing liquidity are a little more complicated from a tax standpoint.
Moving crypto between wallets
Transferring cryptocurrency between your personal crypto wallets or exchanges is tax-free. HMRC does not consider it a disposal, so you will not have to pay Capital Gains Tax on these transactions.
Having said that, it’s still critical that you keep good records of these transfers because things get a little more complicated when it comes to transfer fees.
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Transfer fees
When you transfer your crypto – your wallet provider or crypto exchange will often charge you a transfer fee to do so.
This transfer fee is tax-free if paid in fiat currency, such as pounds.
However, in most cases, you will not be paying this fee in fiat currency, but in cryptocurrency, and spending cryptocurrency is a taxable event. It is considered a disposal of an asset, and any profit is subject to Capital Gains Tax.
HMRC has very specific guidance on what constitutes an allowable cost in cryptocurrency. These are costs that can be added to your cost basis; transfer fees are not included. As a result, we can safely assume that transfer fees cannot be added to your cost basis and, in some cases, would be considered disposals.
POTENTIAL CAPITAL GAINS TAX
Adding or removing liquidity
Are you really into DeFi? The majority of DeFi protocols make use of liquidity pools. If you’re investing in these, you might not think of it as a taxable event at first glance.
Because you’re not actually disposing of the asset, they’re more akin to transferring it from one location to another.
This is the case in some cases. Many DeFi protocols, on the other hand, now give you a token in exchange for your share of the liquidity pool. This could be viewed as a crypto-to-crypto swap, in which you exchange one asset for another, which is subject to Capital Gains Tax.
Each DeFi protocol operates slightly differently, and HMRC has provided no specific guidance on this yet. Your best bet is to speak with an expert.
POTENTIAL CAPITAL GAINS TAX
HMRC has provided specific guidance on how airdrops and forks are taxed in the UK. It’s good for forks, but bad for airdrops. In the United Kingdom, there is no tax on soft or hard forks. However, airdrops are subject to both Income Tax and Capital Gains Tax. Let’s dissect it.
Soft and hard forks
HMRC has specific instructions on how to tax forks.
You will not receive any new assets because of soft forks, and you will not be required to pay any tax.
In the case of hard forks, where you receive a new coin because of a fork, you will not be required to pay any Income Tax on the receipt of these coins. Your cost basis for any coins received from a hard fork, on the other hand, is derived from your existing tokens from the previous blockchain, not the fair market value of the coin on the day you received it.
This is significant because when you later spend, sell, swap, or gift coins obtained from a hard fork, they will still be subject to Capital Gains Tax, just like any other cryptocurrency.
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Receiving an airdrop
In most cases, HMRC says you’ll have to pay Income Tax on airdrops.
HMRC considers airdrop income to be earned whenever you do something to earn it. This could include doing something as simple as sharing a social media post or being rewarded for previous trades on a specific blockchain. As a result, in most cases, your airdrops will be considered income and subject to Income Tax.
Airdrops, on the other hand, are not considered income if you receive them without providing any service or action in return.
You can calculate how much income you have by identifying the fair market value of the tokens on the day you received them in GBP.
INCOME TAX
Selling or swapping coins from an airdrop
The bad news keeps on coming. When you receive an airdrop, you will not only pay Income Tax, but you will also pay Capital Gains Tax if you later sell, swap, spend, or gift the coins or tokens you received.
For airdrops, your cost basis is the fair market value in GBP on the day you received them.
CAPITAL GAINS TAX
Gifting cryptocurrency in the United Kingdom is taxed. It is considered a disposal and thus subject to Capital Gains Tax.
You can, however, give cryptocurrency to your spouse or civil partner tax-free, and you can donate cryptocurrency to a registered charity tax-free. Let’s take a look at each transaction individually.
Gifting crypto to a friend
If you give cryptocurrency to someone other than your spouse or civil partner as a gift, you must calculate the market value (in pound sterling) of the cryptocurrency on the date it was given as a gift. For Capital Gains Tax purposes, this will be considered sales proceeds.
Importantly, if income tax has already been paid on the value of the tokens gifted, section 37 Taxation of the Capital Gains Tax Act of 1992 will apply. This essentially means that the “sales proceeds” will be reduced by the amount already subject to income tax before being subject to CGT.
CAPITAL GAINS TAX
Gifting crypto to your spouse or civil partner
In the United Kingdom, you can give cryptocurrency to your spouse or civil partner tax-free. There is no limit to the amount you can give.
This may not appear to be a big deal, but it is. This legal tax loophole allows you to take advantage of each individual Capital Gains Tax allowance in your household, as well as potentially a lower Income Tax band, all of which can reduce your overall Capital Gains Tax bill.
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Donating crypto to a registered charity
In the United Kingdom, donating cryptocurrency to a registered charity is tax-free.
Individuals who donate cryptocurrency to charity are eligible for income tax relief on the amount donated. They may also be exempt from Capital Gains Tax, with two exceptions:
If the individual sells the crypto assets to the charity for a price greater than the acquisition cost, they must pay CGT on the difference between the selling price (rather than the market price) and the acquisition cost.
If they make a tainted donation — this refers to a situation in which an individual decides with a charity in order to receive a kickback or financial advantage.
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Mining cryptocurrency in the United Kingdom can be done as a hobby or as a full-fledged business. This will be determined by several factors, including:
Hobby miners must pay Income Tax on their mined coins as well as Capital Gains Tax when they sell them. Meanwhile, mining income for commercial miners will be added to trading profits and subject to Income Tax.
Mining crypto as a hobby
If your mining activity is classified as a hobby, any income from mining must be declared separately on your tax return under the heading “miscellaneous income.”
In this case, your income will be the fair market value of the cryptocurrency at the time you receive it in GBP.
Appropriate expenses can be deducted from this income before calculating taxable income.
Keep in mind that when you sell this cryptocurrency, you will be subject to Capital Gains Tax.
INCOME TAX AND CAPITAL GAINS TAX
Mining as a business
Mining income will be added to trading profits and subject to Income Tax if it is classified as a business based on the criteria outlined above. Similarly, any fees or rewards received in exchange for mining or staking will be added to taxable income. Of course, appropriate expenses would be deductible.
Any gain in value from the time of acquisition will be added to the trading profits when disposing of such cryptocurrency. This transaction will also necessitate the payment of National Insurance Contribution.
INCOME TAX
HMRC provides no specific guidance on crypto trading, such as margin trading, crypto futures, and other CFDs. In the UK, however, there is guidance on general day trading tax. The way you are taxed is determined by whether you are:
Most crypto investors will be classified as private. It all depends on the scale, but if you’re working a regular job alongside crypto investing, chances are you’ll be classified as a private investor. Let’s look at how each trading product is taxed.
Margin trading and other CFDs
If you’re caught trading as a private investor, you’ll have to pay Capital Gains Tax on profits from margin trades and other CFDs. As a result, when you open a position, you will not have to pay any taxes. Only when you close your position will you realise a capital gain or loss and be required to pay Capital Gains Tax on any profits.
In the case of liquidation, when your collateral is sold, this is considered a tax disposal and must be reported to HMRC.
CAPITAL GAINS TAX
Derivatives, futures and spread betting
Spread betting in the United Kingdom is, to say the least, contentious. It is the reason that thousands of cryptocurrency exchanges have been barred from operating in the UK because they refuse to remove derivative products such as Bitcoin futures or agree to be regulated by the FCA.
Spread betting is considered gambling in the UK, similar to speculation, and is therefore exempt from Capital Gains Tax. This means that private investors in the UK will not have to pay Capital Gains Tax on spread bets.
However, there is some legal ambiguity here. The FCA has prohibited the sale of crypto derivatives without written permission from the FCA. As a result, you should consult with a crypto tax advisor for more specific advice on these investments.
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DeFi is a relatively new concept that is constantly evolving in order to provide new investment opportunities for crypto investors. This means that HMRC has yet to issue clear guidance on DeFi tax in the UK.
This does not mean that you will not be taxed on your DeFi transactions. It simply means that you must interpret and apply the current HMRC crypto tax rules to your DeFi transactions. Again, regardless of the platform you use, your cryptocurrency will only ever be subject to Income Tax or Capital Gains Tax.
The tax you’ll pay on DeFi transactions is determined by whether you’re seen to be ‘earning’ or ‘disposing’ cryptocurrency. If you’re caught ‘earning’ cryptocurrency, you’ll have to pay income tax. If you are caught disposing of cryptocurrency by swapping, selling, or spending it, you will be subject to Capital Gains Tax. We don’t have specific guidance from HMRC yet, and it’s always a good idea to consult with an experienced tax accountant about your specific transactions, but based on current crypto tax UK rules, we can infer DeFi taxes would likely fall into the following categories:
Earning from DeFi protocols
Anytime you’re seen to be ‘earning’ from DeFi – whether that’s new coins or tokens – it’s likely that HMRC will view this as additional income and you’ll pay Income Tax based on the fair market value of the asset in GBP on the day you received it. In some instances, you may also need to pay National Insurance contributions.
INCOME TAX
Selling or swapping coins and tokens on DeFi protocols
Anytime you sell or swap a coin or token on a DeFi protocol, this is likely to be viewed as a disposal by HMRC, making it subject to Capital Gains Tax. You’ll pay tax on any profits because of a disposal.
CAPITAL GAINS TAX
Thinking of splurging on some bath bombs at lush with your Bitcoin? You’ll need to pay Capital Gains Tax to do so.
Spending crypto on goods or services
Because you are disposing of your asset when you spend your cryptocurrency, you are subject to Capital Gains Tax.
You must calculate any capital gain or loss by deducting your cost basis from the fair market value of your cryptocurrency on the day it was spent.
CAPITAL GAINS TAX
In terms of crypto record keeping, HMRC correctly states that many exchanges do not keep detailed information about crypto transactions, and the taxpayer bears the burden of accurately maintaining these transactions. These specifics are as follows:
You should ensure that you download reports from your exchanges on a regular basis because they may lose your data or simply delete it permanently after a certain period of data.
The HMRC in the United Kingdom has very specific rules for crypto cost basis methods known as share pooling. This is to prevent crypto investors from manipulating the ACB cost basis method by buying and selling assets at a loss in a short period of time, resulting in an unrealistic view of gains and losses.
In the UK, there are three possible cost basis methods you can use, and you need to work through them in order of which applies to your assets:
The UK fiscal year runs from April 6th to April 5th of the following year. So the fiscal year you’ll be reporting on runs from April 6, 2020 to April 5, 2021. You must file your taxes for the current fiscal year by January 31, 2022. All crypto taxes must be declared in your Self-Assessment Tax Return.
Calculating your crypto taxes and reporting them to HMRC takes time, especially if you trade in large quantities.
If you want to manually calculate your crypto taxes, follow these steps:
If your net capital gain is less than the £12,300 Capital Gains Tax Allowance, you will only need to report your crypto taxes to HMRC if and only if the following conditions are met:
If your net capital gain exceeds your Capital Gains Tax Allowance, you must notify HMRC. It’s a lot of work, but AWOC can save you hours.
Your crypto taxes are filed as part of your Self-Assessment Tax Return. Our complete guide to reporting cryptocurrency to HMRC can be found here, but in summary:
Crypto capital gains and losses should be reported on SA100 and Capital Gains Summary SA108.
Report your cryptocurrency income in Box 17 of your Self-Assessment Tax Return (SA100).
You can do all of this online using the Government Gateway service, or you can file your self-assessment tax return by mail using paper forms. Please keep in mind that the deadline for postal Self-Assessment Tax Returns is October 31, 2021.
Still using pen and paper for filing? Not to worry, AWOC can assist. Take the following steps:’
If you run a business that involves cryptocurrency transactions, the rules become more complicated.
Depending on the type of transaction, you may be required to pay a variety of taxes such as CGT, Income Tax, Corporation Tax, Stamp Duties, and even VAT.
It is important to note that HMRC may decide to treat you as a business even if you are an individual if your level of activity is comparable to that of a business. So, how does HMRC determine whether you’re holding crypto as an investment or a crypto trader? HMRC has the following to say about it:
Only in exceptional circumstances would HMRC expect individuals to buy and sell crypto assets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself. If it is considered to be trading then Income Tax will take priority over Capital Gains Tax and will apply to profits (or losses) as it would be considered as a business
In this case, a trade in crypto assets would be similar to trading in shares, securities, etc. This means that crypto traders can refer to the Business Income manual (BIM56800) for more information on the relevant approach.
If you run a business that involves cryptocurrency transactions, the rules become more complicated.
Depending on the type of transaction, you may be required to pay a variety of taxes such as CGT, Income Tax, Corporation Tax, Stamp Duties, and even VAT.
It is important to note that HMRC may decide to treat you as a business even if you are an individual if your level of activity is comparable to that of a business. So, how does HMRC determine whether you’re holding crypto as an investment or a crypto trader? HMRC has the following to say about it:
Only in exceptional circumstances would HMRC expect individuals to buy and sell crypto assets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself. If it is considered to be trading then Income Tax will take priority over Capital Gains Tax and will apply to profits (or losses) as it would be considered as a business
In this case, a trade in crypto assets would be similar to trading in shares, securities, etc. This means that crypto traders can refer to the Business Income manual (BIM56800) for more information on the relevant approach.
If you run a business that involves cryptocurrency transactions, the rules become more complicated.
Depending on the type of transaction, you may be required to pay a variety of taxes such as CGT, Income Tax, Corporation Tax, Stamp Duties, and even VAT.
It is important to note that HMRC may decide to treat you as a business even if you are an individual if your level of activity is comparable to that of a business. So, how does HMRC determine whether you’re holding crypto as an investment or a crypto trader? HMRC has the following to say about it:
Only in exceptional circumstances would HMRC expect individuals to buy and sell crypto assets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself. If it is considered to be trading then Income Tax will take priority over Capital Gains Tax and will apply to profits (or losses) as it would be considered as a business
In this case, a trade in crypto assets would be similar to trading in shares, securities, etc. This means that crypto traders can refer to the Business Income manual (BIM56800) for more information on the relevant approach.
Capital gains summary
Who need to file this?
Anyone who has capital gains or losses during the tax year. You don’t need to file it if your profits are less than the annual CGT allowance (£12,000 in 2019).
What information is needed?
This form requires you to enter the number of disposals, profits and losses from your crypto trades. You also use it to declare any other capital gains ex. from the sale of a residential property.
Once you’ve filed your Self-Assessment Tax Return with HMRC and reported your crypto gains and income, HMRC will tell you how much tax you owe on your cryptocurrency. Cryptocurrency taxes must be paid by January 31st, 2022. This is the same deadline as filing your taxes, so we recommend doing it before this date to avoid being stuck with a large tax bill that needs to be paid right away!
There are legal and strategic ways to reduce your crypto taxes. To potentially pay less tax in January 2023, you must make your move before the end of the fiscal year, which is April 5, 2022.
Leveraging deductible costs
When calculating the gain or loss, certain allowable costs can be deducted from the sales proceeds. They are as follows:
The following costs are not allowable for CGT purposes:
If mining is done as part of a business, the crypto assets will be traded as stock. If they are transferred out of trading stock, the company will be treated as if they purchased the cryptocurrency at the value used in the trading accounts. When they decide to, they can use this value as an allowable cost.
HMRC announced plans to investigate digital currency holders for undeclared gains in October 2021. The letters are intended to persuade cryptocurrency investors to pay the correct amount of Income Tax and Capital Gains Tax on their crypto asset holdings.
The best way to avoid an unwelcome visit from HMRC is to accurately report and pay your crypto taxes.
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