In the crypto world of Bitcoin, Ethereum, and countless altcoins, taxation becomes an ever-growing enigma. In the UK, the intricacies might baffle many. Let’s untangle this virtual net.
By Joshua Pearce – Crypto Tax Specialist
Buying and Holding Crypto
You just bought your first Bitcoin. Exciting, right? In the eyes of Her Majesty’s Revenue and Customs (HMRC), this doesn’t generate a taxable event. It’s similar to buying stocks. Only when you sell or exchange it could the taxman come knocking.
When you sell crypto or NFTs for another cryptocurrency or anyfiat currency (e.g. British Pounds), that’s when you might owe capital gains tax. It’s like selling a property; and the difference between the buying and selling price is what you could be taxed on.
Crypto Mining and Staking
Mining or staking crypto is a bit like finding a gold nugget while hiking. HMRC views it as a form of income, which means it is subject to Income Tax and in some circumstances National Insurance contributions.
Using Crypto for Goods/Services
Bought a Tesla with Bitcoin? Technically, you’ve ‘sold’ your Bitcoin. The gain (or loss) from the Bitcoin’s value from when you got it to when you turbocharged your life is taxable.
Receiving Crypto as Income
If your employer pays you in crypto, it’s still considered income and taxed accordingly.
Cryptotax Challenges in the UK
If you are liable to pay crypto tax in the UK, remember that the tax year runs from 6th April to 5th. This could affect when you choose to sell your NFTs and crypto assets.
Are you considering passing on your crypto assets as a gift or inheritance? It might be subject to Inheritance Tax, but the typical gift exemptions can still apply.
Preparing for Cryptotax
In the crypto realm, good record-keeping isn’t just good practice, it’s a lifeline. From NFT and crypto currency transactions to wallet addresses, keep everything. You’ll thank yourself later.
Seeking Professional Guidance
Navigating the crypto taxation waters alone? Brave, but perhaps a tad unwise as we can’t all be experts in everything. Consider seeking a crypto tax professional like me, especially if your transactions are numerous.
Avoiding Common Mistakes
Not Reporting Gains/Losses
If you’ve made a minor loss or gain, you may be tempted to skip out on reporting it. Think twice. HMRC can backtrack, and you don’t want to be caught unprepared or worse, face a fine or tax investigation.
Using the Wrong Tax Year
As mentioned earlier, don’t get caught out using the wrong tax year. It’s an easy slip, but it can be a costly one.
How is crypto taxed in the UK?
Cryptocurrency is taxed either as capital gains or income, depending on your activities.
Do I need to pay tax if I just buy and hold crypto?
No, you only owe tax when you dispose of it – i.e., sell, trade, or use it for transactions.
How does HMRC view crypto mining?
It’s viewed as income. If you’re mining on a small scale, it might be considered additional income. On a larger scale, it could be seen as a business.
What happens if I don’t report my crypto transactions?
You might face penalties or legal actions. Always ensure you’re compliant with tax regulations.
Can I use losses in crypto to offset other capital gains?
Yes, crypto losses can be used to offset other capital gains you might have. Again, proper record-keeping is key.
Venturing into the world of crypto is thrilling, filled with opportunities and challenges alike. But when it comes to cryptotax in the UK, it’s essential to understand what you need to pay. So, equip yourself, stay updated, and when in doubt, ask a crypto tax consultant. Remember that in this digital age, the taxman might not wear a bowler hat, but he’s definitely tech-savvy and has access to your data.
Need more advice on Crypto / NFT tax 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.
- Crypto tax FAQ
- Business start-ups in the cryptosphere
- Should I incorporate my crypto trading activities?
- Tax implications of being paid a salary in crypto
- Crypto Day Trading and Tax
- NFTs – the importance of planning
- Tax on crypto staking and lending
- Crypto Tax specialist services
- DAO – Digital Autonomous Organisations
- Ask our UK based crypto accountants for crypto tax advice
- Other crypto insights and services