Self assessment for crypto investors

Crypto investors may need to declare their income tax by filing a self assessment tax return, but how can you minimise how much tax you will have to pay?

You could consider:

1. Capital gains and losses
   • When selling crypto assets or NFTs at a loss the seller will be able to offset any current year losses against future gains, but only if they are claimed within a 4 year window. Once claimed, losses can be carried forward indefinitely.
   • Capital gains tax kicks in when your profits on sale reach £12,300 this tax year, but from 2023/24 the tax exemption reduces to £6,300 and in 2024/25 to £3,000. So even if you have no gains to report this year, it may be worthwhile calculating your losses and submitting a tax return to offset these losses against future gains.
2. Income
   • Is your crypto trading profit income? Or capital gains? In general, crypto gains would be treated as capital gains although certain forms of income will be subject to income tax for example mining fees, staking and potentially airdrops.
   • Income tax rates for individuals are 20%, 40% and 45% whilst capital gains tax rates are 10% or 20% on crypto gains. So as an individual it is usually more attractive to treat crypto gains as capital gains than pay income tax. If you do have substantial income subject to income tax eg mining fees, then it may be worthwhile incorporating your crypto trading into a company. Companies pay tax on income and gains currently at 19% although the Government have announced that corporation tax is set to rise to 25% from April 2023.
3. Are you being paid your salary in crypto currencies, assets or NFTs?
   • The good news is that it’s the employer’s obligation to report the pay to HMRC and make the necessary deductions. It’s not possible to report salaries to HMRC in terms of crypto so for the calculation of deductions everything has to be converted into £ sterling. Tax and national insurance will be calculated on the £ sterling value and the employee is then paid the net amount in crypto.
   • Note that when you sell or spend your crypto assets, you may be liable for capital gains tax – see above.

Crypto tax can be very complicated and it’s worth taking professional advice from a crypto tax accountant. If you would like to speak to one of our crypto accountants or obtain a quote for assistance with your crypto tax affairs please do get in touch via the contact form below.