Working out whether you need to pay cryptocurrency or bitcoin tax
Your gain is usually the difference between how much you paid for an asset and what you sold it for. You pay capital gains tax on your gains above the tax-free allowance.
There are some cryptocurrency-specific ‘allowable costs’ that you can deduct from your gain, including:
-
transaction fees paid before the transaction is added to a blockchain
-
advertising for a buyer or seller
-
drawing up a contract for the transaction
-
valuation that helps you work out your gain for that transaction
You can’t deduct costs if you’ve already done so against profits for income tax, or for the cost of mining activities (like equipment or electricity).
It’s also important to get to grips with HMRC’s ‘pooling’ concept. While HMRC says that this ultimately makes it easier to work out what tax on cryptocurrency to pay, it can be a complex topic.
When working out your gain, you group each type of token into a pool, which is also what you need to do for regular investments in a single company.
But you don’t group tokens into pools if you buy them on the same day that you sell tokens of the same type, or within 30 days of selling tokens of the same type.
Find out more about cryptocurrency pooling and capital gains tax in HMRC’s manual.
How to pay tax on cryptocurrency UK
You report gains on cryptocurrency on your annual Self Assessment tax return.
You can also use HMRC’s real-time capital gains tax reporting service. Remember that gains are reported in pound sterling.
As usual, it’s important to keep accurate records for your taxes, which includes your cryptocurrency activity too. HMRC says this means the:
-
type of tokens
-
date you disposed of them
-
number of tokens you’ve disposed of
-
number of tokens you have left
-
value of the tokens in pound sterling
-
bank statements and wallet addresses
-
records of the pooled costs before and after you disposed of them
If you’re not sure about anything, speak to HMRC or a professional adviser.
Do I have to pay cryptocurrency tax as part of my business?
The above information is for Self Assessment taxpayers who buy and dispose of cryptocurrency as an individual.
However, some businesses and companies may be carrying out activities involving cryptocurrencies, including:
-
buying and selling exchange tokens
-
exchanging tokens for other assets (including other types of cryptoassets)
-
‘mining’ (the complex process by which new units enter circulation)
-
providing goods or services in return for exchange tokens
If your business does any of these, various taxes may apply, including:
You’ll have to report tax on your Self Assessment tax return or your company tax return.
HMRC’s detailed cryptoassets manual has more on the tax treatment of business activities that involve cryptocurrency.
But as this is a complex topic, it may be best to get professional advice.
Cryptocurrency news UK
As a new, and often unpredictable, investment, it’s important to keep up to date on the latest cryptocurrency news. Websites like Forbes can keep you updated on the latest crypto exhcange rates. This can affect when and where you trade, as well as what tax you will owe.
Keeping up to date on the latest cryptocurrency news can be helpful when planning future financial decisions. For example, the Bank of England and Treasury are set to make a decision about whether the UK will create its own ‘Britcoin’ digital pound by 2025.
Useful small business guides
Would you like us to write about any other cryptocurrency topics? Let us know in the comments below.
