Cryptocurrency and the Tax Implications

Cryptocurrency and the Tax Implications

The world of Cryptocurrency is expanding and becoming more mainstream. More and more people are investing; therefore, the values are seeing rises significantly.

What is Cryptocurrency?

Crypto assets or currency is a virtual coinage used to purchase online goods or services. The “crypto” element means that transactions are not verified by the bank or a governing body but instead through a decentralised peer to peer system using cryptography.

People find the cryptic element appealing as they believe they have more control over their funds; however, there are risks. Without the protection of a central authority, nobody is responsible for helping you retrieve your money back if stolen.

Do I have to pay tax on Cryptocurrency?

A common question and in short form – yes.

To tackle the misconception, the government released the crypto-assets manual in December of 2019. It aims to educate individuals and businesses on the tax implications that can arise from transactions linked to Cryptocurrency.

It covers exchange tokens in which Bitcoin is an example of, making it very clear that profits made from buying and selling Cryptocurrency are subject to tax.

Tax rules for individuals

Anyone buying or selling Bitcoin or alternative cryptocurrencies as an individual will be subject to Capital Gains Tax on any gains made.

In some cases, for those who are “trading” Cryptocurrency, HMRC will look at the scale, level of organisation and frequency to see if your activity amounts to trade. HMRC will then decide to charge income tax or not. Contact HMRC for advice. Click here 

It comes down to the number of gains you have made when Cryptocurrency is sold, not the amount invested.

For Employees and Consultants

Some businesses have decided to pay staff via Cryptocurrency. In this circumstance, employees will need to pay Income Tax and National Insurance Contributions.

If you are a self-employed consultant and businesses pay for your services via Bitcoin or an alternative cryptocurrency, the responsibility to disclose and pay Income Tax and National Insurance Contributions falls to you through your self-assessed tax return.

When it comes to my tax return, do I need to declare my cryptocurrency sales?

If you are a UK resident and make gains over your Capital Gains Tax exemption, you will need to declare your profits and pay CGT. Alternatively, you will still need to say if your crypto assets fall under the CGT exemption, but you have other capital gains that together exceed the CGT threshold.

HMRC now receives information from the UK crypto exchange; therefore, failing to disclose your gains could likely launch an HMRC investigation, leading to potential penalties and fines.

If I have incorrectly reported my cryptocurrency sales, what should I do?

In this situation, make sure to contact HMRC and make a voluntary disclosure to correct the error. Don’t wait for HMRC to contact you.  If due, they will more likely lower the financial penalty you need to pay.

We are always here to help and advise you on any investments you make and how this might impact your tax liability.