Tax and cryptocurrency in the UK
We can help with the essential things to remain compliant.
(Be Quick! James’ calendar is filling up fast!)
Regulatory authorities now require investors to report transactions involving cryptocurrencies. So, using Bitcoin to buy Ethereum or an NFT is regarded as a tax transaction . Therefore, there are now tax points for crypto transactions that can catch you out if neglected.
Moreover, if you engage in any crypto activity on an exchange, those activities are likely reported to the taxman anyway. In fact, HMRC (Her Majesty’s Revenue and Customs) acknowledged a couple of years ago that they work with large crypto exchanges to share customer information provided from Know Your Customer identification records.
In addition, if you want to cash in your gains, the bank would want to understand the origin of the funds. Hence, a tax return is a good audit trail to show the bank.
People who deal in crypto tend to make a lot of transactions. Consequently, this generates voluminous data and this data needs to be processed correctly. But it’s both self-defeating and futile to attempt analyzing these tokens manually – apart from the obvious irony of using archaic methods on something as high-tech and cutting-edge as crypto.
A better approach is to use crypto tax software such as Koinly to work out your gains, losses, and income. Your crypto accountant can subsequently use this data to prepare your tax return.
However, all accountants aren’t created equal. Some understand crypto much better than others – they how it works and how it is taxed. So, your best approach is to approach the best at The Accountancy People.
Overall, we believe cryptocurrency is a force for good in society and a vast majority of its transactions are legitimate. As a result, it’s unfair for your excitement and enthusiasm shouldn’t be blunted or diminished.
Furthermore, if you engage in crypto mining, we also recommend you discuss your tax structure with us.
THINGS YOU NEED TO KNOW ABOUT CRYPTO AND TAX
According to HMRC, you calculate gain or loss for capital gains tax when disposing of crypto assets. So, the first thing to understand is that crypto gains need to be treated as capital gains.
HMRC doesn’t view cryptocurrency as a real currency. However, it also understands that most people keep crypto as a personal investment. Therefore, capital gains taxes are imposed on this investment when crypto is eventually disposed of. This is a huge advantage for the crypto investor because capital gains are taxed less heavily than income tax.
In the interest of proper accounting, it’s imperative to understand the way capital gains are calculated. In the event you purchased your crypto assets piecemeal, then the cost is the average price you have paid. Your profit is what is left after you subtract the average cost of the transaction.
HOW IT WORKS
Any sales are first matched with purchases you make on the same day. Subsequently, sales are matched against purchases in the month after you have sold.
To be on the good side of the law, it’s important to understand what exactly HMRC regards as the “disposal” of crypto. In this case, disposal is regarded as constituting of one of the three:
- Selling crypto for a fiat currency
- Exchanging or trading one cryptocurrency for another
- Giving away crypto as a gift to another individual, unless the person is your spouse or civil partner
- Spending crypto on goods and services
Secondly, there are other caveats that apply. As a crypto investor, you are only obligated to pay crypto taxes above a certain amount. This annual exempt amount is pegged at £12,300 for the 2021/22 fiscal year.
In general, the following are the type of crypto activities that are taxable:
- The aforementioned capital gains above £12,300
- Crypto received in lieu of or as salary
- Income received as part of crypto rewards, mining, or airdrops
WHAT ABOUT TRADING?
There is an exception to the capital gains mandate. If you’re a business owner making profits from trading cryptocurrencies, then income tax requirements take precedence over capital gains.
WHAT ABOUT LOSSES?
Finally, capital losses incurred from crypto transactions can be applied as tax liability. Hence, if you sell crypto at a loss, the amount lost can be subtracted to reduce the general capital gain.
As you can see, the process is messy and complicated. But we are here to ensure your returns are done on time and are complete. We also pay for your insurance, so if you have an investigation, the cost of defending yourself is covered.
As your best accountant for crypto, we have multifaceted ways to help all manners of business take care of essentials. In fact, we have a specific pathway to assist 90% of businesses and start-ups to maximize the value of their crypto investments.
Our crypto accountants will communicate with you in a clear and uncomplicated manner so you understand what you need in a timely manner. As a result, you can forget about accounting and focus on what you do best.
The following are some of the benefits and minor obligations required of you:
- Make your monthly payment
- Send us documents when we ask for them (you can often simply take a photo with your mobile phone and send through an app)
- Let us know if there are any issues with our software
- Pay your taxes when they are due
- Let us know if there are any issues with our software
- Talk to us about your finances so that you understand them
- Ring or email us when you have a problem
- Get on with your life. We will do the rest.