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.
HMRC Campaign
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.
Gary Ashford, chair of CIOT’s Crypto Assets Working Group, highlighted that many investors may be unaware that profits from crypto assets are subject to income tax or capital gains tax (CGT). He advised that even those who do not receive a letter should review their crypto activity and ensure they comply with tax regulations. Ashford also pointed out that tax liabilities can arise even if investments appear unprofitable. Activities such as selling, lending, “staking” crypto assets, or transferring them between portfolios can trigger a taxable event. He warned that these transactions are taxable within the relevant tax year, regardless of whether the overall portfolio shows a loss after the year ends.
From April 2024, the CGT reporting threshold for those outside self-assessment has been reduced to £3,000, down from £6,000 and significantly lower than the £12,300 limit before April 2023. This change means more individuals may find themselves subject to CGT reporting and payments without realising it. Those with taxable gains exceeding this threshold, including from crypto assets, must report them to HMRC and pay any tax due or face potential interest and penalties.
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.
