There are more than 8,000 cryptocurrencies now in existence, it is therefore no surprise that so many people have dipped their toe into the market and tax is coming to the surface.
One of the big misconceptions is that crypto is a currency for UK tax purposes, thus tax exempt (when using a spread betting account).
HMRC advise that, in the main, crypto is an asset. The tax treatment therefore tends to follow with the majority of transactions being subject to Capital Gains Tax.
Capital Gains may arise on disposals of crypto assets which, just like any other capital asset, is liable to CGT.
You might need to pay CGT when you are:
• Selling crypto assets for money
• Exchanging crypto assets for other crypto assets
• Using crypto assets to pay for goods and services
• Giving away crypto assets to another person
As always, there are exceptions to the rule such as crypto mining or high frequency trading in crypto – these may be deemed to be trading income and subject to Income Tax.
We are also starting to see more payments to employees in crypto. As employment related, they should be processed through payroll and subject to both Income Tax and National Insurance Contributions.
Not surprisingly, investors in crypto are attracting attention from HMRC. HMRC have recently launched a campaign targeted at crypto investors as part of their crack down on tax evasion. If you own crypto assets and have not disclosed their sale, exchange, gift etc. to HMRC, the voluntary disclosure service provides an opportunity to put things right with potentially lower penalties than if HMRC discover the underpayment for themselves.
Crypto takes many forms – such as tokens, cryptocurrencies, exchange tokens (for example, bitcoin), non-fungible tokens and utility tokens. If you think you have not complied with your reporting obligations and would like help, please get in touch with us on 01223 810100.