How Crypto is Taxed in the UK and how to calculate it

cyrpto accountants in uk: how it is taxed

Is crypto taxed in the UK?

Cryptocurrency is taxable in the UK. Whether you have to pay and how much you have to pay depends on how you invest in crypto and how much you have earned. This artciles discusses all things crypto tax uk.

We get a lot of questions on whether you need to pay capital gains tax, pay income tax or what you need to put on your self assessment tax return. A lot of people do not think you need to pay tax on crypto but you definitely do need to pay tax on crypto!

So do not avoid paying tax.

In the UK you will need to declare your crypto capital gains on your self assessment. The tax year ends 5th April every year. On the 31st January, you will need to submit your self assessment and pay file crypto taxes.

Is HMRC aware of your cryptocurrency holdings?

If you hold cryptocurrency, HMRC can find out.

A common misconception is that cryptocurrency allows individuals to hide their assets. In fact, HMRC can request information about all UK exchange customers.

HMRC made multiple requests to Coinbase in 2021 and 2022. Data shared included identifying information about customers with holdings exceeding £3,000 and withdrawals exceeding £5,000 in 2019 and 2020.

Undeclared crypto: what to do?

We recommend that you get clear on your tax position and make a voluntary disclosure to avoid possible penalties. This is because of the level of interest from HMRC in this area.

We’ll explain exactly how to figure out your tax situation later in this guide. There are capital gains tax on cyrpto transactions and you need to to determine if there has been a taxable event. Once determined if there are tax to pay then you need to work out your capital gains tax liability.

What is the tax treatment of cryptocurrency?

As of March 2021, HMRC has published guidance on crypto assets, although there is currently no new legislation specific to crypto assets. 

Additionally, there are no relevant cases that have been brought to a UK Tribunal to establish case law that suggests any alternative treatment.

The general principles of cryptography are explained in more detail below.

Cryptocurrency capital gains tax

Crypto is considered an asset in the UK, and whenever you dispose of an asset, the gain or loss may be subject to capital gains tax (after any tax-free allowances).  Remember you do have a capital gains tax allowance, £12,300 , so you may not need to pay crypto tax. Its important to use your tax free allowance whenever you can.

You can be considered a trader if you are holding crypto assets. However, be aware that HMRC will typically view you as an investor rather than as a trader if you are a trader. According to their guidance, trading in crypto assets involves:

Buying and selling exchange tokens with such frequency, level of organization, and sophistication would be considered a financial transaction by HMRC only in exceptional circumstances.

  • Buying, selling, or spending cryptocurrency
  • Gift of crypto
  • DeFi-based staking
  • Cryptocurrency is removed from a liquidity pool
  • Capital gains can be triggered by the following events:

What is the UK’s capital gains tax rate?

UK taxpayers are entitled to a capital gains allowance of £12,300 each year (due to fall to £6,000 in 2023/24, as the Chancellor announced in the Autumn Statement). Tax planning opportunities exist with this allowance for investors with unrealised gains and losses.

For higher and additional-rate taxpayers, gains over the exemption will be taxed at 20%, and for basic-rate taxpayers, at 10%.

What about crypto? Isn’t it a currency?

Despite the fact that some countries use cryptocurrency as their official currency, HMRC does not consider crypto a currency for tax purposes. If crypto were considered a currency, profits would not be taxed.

HMRC does not see crypto assets in the same way as they see fiat currency. That is why there is a capital gain on your crypto transactions.

HM Revenue & Customs maintains that gains on crypto assets are taxable because they are intangible assets.

Taxes on crypto earnings

If you receive cryptocurrency returns, you will be subject to income tax in the following cases:

Employers may receive cryptocurrency as compensation (National Insurance will also apply).

  • If you are deemed a trader
  • Token mining
  • Getting airdropped
  • Staking rewards

What is the amount of tax I have to pay?

We’ll discuss next how to keep track of the gains you’ve made throughout the year and identify the value of your income on the day you earned it.

Calculate your crypto position

t is difficult to get a comprehensive view of total capital gains and earnings from cryptocurrency investors. This is because they hold multiple types of crypto and engage in different types of transactions.

Firstly, you must aggregate your transactions in accordance with HMRC’s calculation guidelines. 

If you have disposed of assets, you must determine their cost base. The methodology to be applied here will vary depending on the timing and amount of purchases and disposals. 

A reliable accountant or good software can make this easier.

Crypto Assets: Capital losses

You may have made a loss on your crypto transactions and therefore you will have capital losses, you can offset this against other capital gain. This means that your capital gains tax may be reduced if you made a capital loss on your crypto assets.

Accountants for cryptocurrency

We specialise in ecommerce and those in that space generally buy and sell crypto, so we are experts in both fields.

If you hold cryptocurrency and need assistance understanding your obligations, filing returns, or making voluntary disclosures to avoid potential penalties, we can help. If this sounds like you, please contact us.

Free 30 Minute Consultation

Why not grab a Free 30 Minute Consultation with one of our Accountants, they can answer any questions you have about your e-commerce or marketplace business, guide you on tax efficiency and see if we can help you.

You Have Nothing to Lose & A Lot to Gain

Free 30 Minute Consultation

Why not grab a Free 30 Minute Consultation with an Accountant, they can answer any questions you have about your e-commerce or marketplace business, guide you on tax efficiency and see if we can help you.

You Have Nothing to Lose & A Lot to Gain
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