/ Common Mistakes in Cryptotax Filings and How to Avoid Them

Common Mistakes in Cryptotax Filings and How to Avoid Them

September, 2023

Cryptocurrencies have disrupted the financial world and have led to much discussion about taxation. While it’s exciting to be part of this financial revolution, it’s equally essential to keep the taxman satisfied. And that’s where many crypto enthusiasts make costly mistakes.

Why cryptotax is different from traditional tax

Traditional tax is complicated, but the crypto space is even more so. With no centralized authority, values that swing wildly, and numerous transaction types, cryptotax can become a tangled web very easily.

Top Mistakes in Cryptotax Filings

Not reporting all transactions

“I made a small crypto trade. Surely, I can skip reporting that, right?” Wrong! Every transaction, no matter how minuscule, counts.

Using incorrect valuation methods

Determining the right value of your cryptocurrency at the time of the transaction can be tricky. Do not rely on memory or rough estimates. Accuracy is key here, so ensure that you keep proper records.

Forgetting about airdrops and forks

Got some free crypto from an airdrop or a fork? Remember that freebies aren’t necessarily tax-free.

Not applying the correct tax rules

The UK has unusual rules to match the purchase and sales of crypto when calculating your gains and losses and these can make a huge difference to your tax liability.

The Implications of Mistakes

Mistakes can cost you – sometimes literally! Incorrect filings can lead to penalties or even hefty fines from HMRC or tax authorities in other countries. There may be legal ramifications too, which can be worse than a hit to the wallet, such as a knock on your door from the investigation team from HMRC. Tax evasion is no joke.

Tips to Stay on the Right Path

Keep meticulous records – Ever heard the saying, “The faintest ink is better than the best memory”? It rings especially true here. Document every crypto transaction. Your future self will thank you.
Stay updated with tax laws – Tax laws aren’t set in stone. They evolve. And with crypto being a relatively new player, expect frequent changes. So, always have your ear to the ground or know someone who does.
Engage a tax professional – If you’re feeling overwhelmed, it’s okay to seek help. A crypto tax professional can guide you, ensuring your filings are spot on. Plus, they can offer advice tailored to your situation, saving you money and stress in the long run.

Crypto FAQs:

How often should I report my crypto transactions? Report them as part of your annual self-assessment tax return. If you are trading in crypto as a business, you should report them as part of your regular company tax returns.
Are all cryptos taxed the same way? While the principle remains consistent, there are variations in calculating gains depending on what type of crypto asset you are selling and how you received them.
Do I need to pay tax if I only had losses and no gains? No, but you need to claim the losses so that they can be offset against other gains or income.
What if I made a mistake in a past year’s filing? It’s best to disclose this to HMRC as soon as you discover the mistake mitigate any potential penalties.
Are crypto gifts or donations taxable? They might be. The regulations vary, so it’s advisable to consult a tax professional for clarity.

The crypto journey is exciting, but it comes with its share of responsibilities. Avoid the common tax pitfalls by arming yourself with sufficient knowledge, and when in doubt, consult a trusted crypto tax advisor.

Due to the overwhelming number of requests we are not accepting any more crypto enquiries at this time

PLEASE NOTE: OUR MINIMUM FEE FOR CRYPTO TAX SERVICES IS £1,000 + VAT

How we can help

We have an experienced team of crypto tax advisors familiar with the unique challenges relating to crypto trading and currency who can provide support with:

Calculating your taxable gains and losses
Your annual HMRC filing obligations
Undeclared crypto gains and disclosures
Tax planning to ensure that your cryptoassets are properly structured
Ensuring correct valuations are used for your cryptoasset disposals
Tax efficient structures for Non-UK domiciled individuals
HMRC tax disputes and investigations
Business start-ups in the cryptosphere

Need more advice from a Crypto specialist accountant?

We have a lot of information about the UK tax situation for Crypto and NFT on our website which you may want to read before getting in touch.

How we can help

We have an experienced team of crypto tax advisors familiar with the unique challenges relating to crypto trading and currency who can provide support with: