If you are investing in Cryptocurrencies and coins (Cryptoassets), you need to know about a couple of key tax issues.
We are still in the early days of HM Revenue & Customs being able to deal with these under the current tax law, so there are some odd things you need to know.
Top five crypto info
The top 5 most important things you need to know are:
1. Crypto currencies and Capital Gains Tax (CGT).
Generally crypto currencies are subject to Capital Gains Tax (CGT). Where this is the case, you have a separate annual allowance that means you can make a profit of £12,300 as capital gains per year before paying tax.
As a side note, crypto currency ‘mining’ (an activity where you create new coins) is often seen as trading income. So, it is subject to ‘normal’ income tax and the allowances that go with that.
2. Selling cryptoassets for fiat money
Selling cryptoassets for fiat money (1) (i.e. government backed currency such as £ or $) counts as you ‘disposing’ of it for CGT purposes. This means you may be charged tax, or even have a loss to record.
3. Exchanging one cryptoasset for another
If you use a crypto currency such as Bitcoin to buy ETH (2) for example, it is a disposal of Bitcoin for CGT purposes (as above). Swapping coins can cause a gain or a loss you need to deal with.
4. Paying for goods or services with cryptoassets
In the UK, some retailers hit the headlines when they announced that they accept Bitcoin for everyday purchases. However, if you want to buy a real cup of tea (or a bar of soap) with a virtual coin, this is treated as if you have disposed of the coin and could result in a tax bill!
5. Crypto-assets and your tax return
If you have tax to pay, you will need to complete a tax return to pay this tax. HMRC have been writing to taxpayers recently where they suspect they might have something to declare, as they now have access to even more data on people with these assets.
Action Point: If you are doing any of the above, keep very detailed records of your transactions, so if you do need to do a tax return, you have the information.
I’m still confused about crypto
We’re not surprised, It’s a fast-evolving marketplace with a completely different way of purchasing and securing assets.
Frankly, not a lot of accountants know about this stuff. As an early adopter of various internet technologies, we do, including blockchains, wallets, private keys and NFTs.
If you’re into crypto (or want to be) but need help with the accounting implications, book a consultation with us. We offer a paid 1 hour, 1-2-1 consultation so you can ask simple questions of an accountant. You don’t have to become a client, so it’s a great way for you to get the help you need, when you need it.
Trust us, we needed this ourselves at first!
(1) “Fiat money is a type of money that is not backed by any commodity such as gold or silver, and derives its value solely from the trust that people place on it.”
(2) ETH The popular cryptocurrency and blockchain system known as Ethereum is based on the use of tokens, which can be bought, sold, or traded.