If you’ve engaged in any sort of cryptocurrency transaction over the last year, it’s highly likely that you’re going to have to report it in your tax return. Transactions include, but are not limited to, buying, selling, trading, mining, staking, giving and/or receiving cryptocurrency, and this applies whether the transaction happened in the UK, America or even one of this country’s many affiliated tax havens. Hello Bermuda! Basically, if you’ve ever used crypto, Her Majesty’s Revenue & Customs (HMRC) wants to know about it.
But actually working out your cryptocurrency tax can be difficult and there are a lot of different facets you need to consider when preparing your tax return. Yet with HMRC keeping UK crypto investors squarely in the spotlight, it’s more important than ever that you know what you’re doing and how to report your tax obligations correctly.
To help you on your way, we’ve compiled a comprehensive guide to the current rules surrounding cryptocurrency and tax in the UK. While this guide is based on the latest information from HMRC, we’re not tax experts and the information you’ll find below shouldn’t be considered a substitute for professional advice. If you need more specific guidance, visit HMRC’s guide to cryptoassets or contact them directly on 0300 200 3300.
- How does HMRC view cryptocurrency?
- Am I an investor or trader?
- Capital Gains Tax (CGT)
- Calculating your Capital Gains
- What's my Capital Gains Tax rate?
- Minimum gains allowance
- Capital Gains Exceptions
- An investor’s guide to crypto transactions
- Buying cryptocurrency
- Selling/trading cryptocurrency
- Using cryptocurrency to make purchases
- Making purchases with CoinJar Card
- Derivatives trading
- Hard forks
- Loans/liquidity pools and other DeFi income
- Moving crypto between wallets
- Pension contributions
- How does tax work for cryptocurrency traders and businesses?
- Am I a trader?
- Working out your tax as a trader/cryptocurrency business
- Can I be both a trader and an investor?
- What does it mean to be a cryptocurrency trader?
- Do I have to set up as a sole trader and register for VAT?
- Cryptocurrency mining as a business
- Loans, interest, staking and other forms of cryptocurrency-related business income
- Paying employees in cryptocurrency
- Reporting your tax
- Tips for minimising your crypto tax
HMRC’s view on cryptocurrency is, in a word, evolving. However, there are a few things we know for certain.
First, they don’t view cryptocurrency as money but rather as an asset, like buying a share in a company. This means that selling or disposing of your cryptocurrency will result in a capital gains event, even if you’re using that cryptocurrency to purchase something. To put it another way, this means the tax rules that apply to the buying and selling of shares also apply to the buying and selling of cryptocurrencies.
Second, they distinguish between three different types of cryptoassets (their preferred terminology): exchange tokens; utility tokens; and security tokens. The vast majority of cryptocurrencies are exchange tokens, which refers to their ability to be exchanged for value or held as investments. Utility tokens are those that can only be used within certain frameworks (i.e. fan tokens issued by a football club), while security tokens represent real world assets or debts.
HMRC suggests that all three will be considered similarly from a tax perspective, but in the unlikely event that you’re dealing extensively in utility and security tokens you may have to reach out to HMRC for specific guidance.
Finally, the tax that you’ll have to pay on any given transaction depends on two things: whether you’re an investor or a trader; and whether the transaction is considered a capital gain or assessable income.
First thing you need to do is work out whether you’re classified by HMRC as an investor or a trader.
An investor is someone who is primarily buying and selling cryptocurrencies as a personal investment tool. In this case, your income will be derived primarily from short- and long-term capital gains, as well as staking, forks and airdrops.
Most people who engage with cryptocurrencies will be considered investors and, as a general rule, their cryptocurrency transactions will be subject to Capital Gains Tax (CGT).
A trader is someone whose primary activity and source of income is the buying and selling of cryptocurrency. Rather than assessing each transaction as a capital gains event, traders treat their profits as personal income instead.
Becoming a trader isn’t simply a question of trading cryptocurrency. You need to trade with sufficient frequency, volume and sophistication that you’re running a one-person financial trading operation. HMRC is at pains to point out the high and exceptional nature of this threshold – basically, if you’re coming here for tax advice it probably doesn’t apply to you. You can find more information about the requirements and consequences of becoming a cryptocurrency trader here.
HMRC classifies digital currency as an asset, much like a house or a share in a company, which means that you need to assess your capital gains every time you sell, trade or give away your crypto. We go into all the different types of capital gains events in more detail below.
Note that a capital gains event only occurs when you actually do something with your crypto. If you simply buy and HODL, then you don’t need to pay tax on your cryptocurrency, even if the value of your portfolio increases (or decreases) significantly.
If you make a profit on a transaction, then you’ll need to pay tax on your capital gain. For instance, if you buy 1 bitcoin at £7000 (this is what’s known as your “cost basis”) and sell it six months later for £10,000 then you’ve made a capital gain of £3000 and will need to pay tax on that amount.
Your allowable cost is the cost of the cryptoasset you acquired minus any available deductions. These include transaction fees charged by an exchange, network fees charged to put the transaction on the blockchain and any professional fees relating to the sale (relevant primarily if you’re conducting over-the-counter sales).
So, in the above example, if an exchange charged you £5 to sell your bitcoin, your capital gain would actually be £2995.
If you have bought an asset multiple times, you’re allowed to pool all your acquisition costs together to create an average price.
Let’s say you purchase one bitcoin in 2017 for £3000 and then buy another bitcoin in 2019 for £7000. This means the pooled cost basis of your two bitcoin is now £5000. If you then sell one of your bitcoin for £9,000, your capital gain will be £4000.
If, on the other hand, your cryptocurrency is worth less when you sell it than when you purchased it, you’ve made a capital loss. So, if you buy one bitcoin at £7000 and then sell it six months later for £4000, you’ve taken a capital loss of £3000.
Capital losses can be used to offset capital gains either in the same financial year or in subsequent financial years. Let’s say you made a £5000 capital gain on one trade and a £3000 capital loss on another. In this case your overall capital gain is £2000, because your loss partially offsets the gain.
Capital losses can be carried forward for up to four years, but they must be used if you make a capital gain in a subsequent year. Capital losses cannot be used to offset your income from work.
This is crypto, so the likelihood that at some point you bought a token whose value is now zero is reasonably high.
In this case you can make a negligible value claim, which effectively means you sell the asset at a price of zero – even if you technically still own it. Your capital loss in this case is the entirety of your pooled purchase price.
It’s important to note that assets cannot have been of negligible value when you acquired them, they must have become of negligible value while you have owned them.
The timing of a loss is key as they cannot be carried into a previous tax year. As such, if possible, a negligible value relief claim should be made as soon as possible. When a loss has been crystallised, it can be carried forward and offset against future capital gains.
When it comes to calculating your net capital gains, HMRC doesn’t differentiate between different types of asset, so the profits you make from selling crypto, shares or any other asset are all bundled in together. (Property is considered separately as it’s taxed at a higher rate.)
The formula is simple:
Total Capital Gains
Total Capital Losses (incl. previous years)
Net Capital Gains
Net Capital Gains Example
Sarah has invested £5000 in Ethereum for a pooled price of £150 and £5000 in Basic Attention Token (BAT) at 25p. Three months later she sells half her Ethereum when the price reaches £200 and receives £3,333. Her capital gain on the transaction is:
£3333 – £2500 = £833
When the market tanks six months later, Sarah sells the rest of her Ethereum at £120 for £2000. At the same time she also sells half of her BAT for 18p, receiving £1800.
£2000 – £2500 = -£500
£1800 – £2500 = -£700
This means that at the end of the financial year, Sarah has an £833 capital gain and a £1,200 capital loss.
£833 – £1200 = -£367
Sarah has made a net capital loss of £367 and won’t have to pay any capital gains tax. However, the following year the market soars and Sarah’s BAT are suddenly worth 75 cents each. She decides to sell the rest of her holdings for £7500.
£7500 – £2500 = £5000
When she calculates her net capital gain for the year, she also claims her loss from the previous year.
£5000 – £367 = £4633
The amount of tax you’ll need to pay on your capital gains is determined by both your overall taxable income and the amount of capital gains you’ve made.
As a general rule, if your taxable income for the financial year is less than £12,500, you don’t have to pay any CGT.
If your taxable income is between £12,500 and £50,000, you’ll pay 10% on your capital gains.
If your taxable income is over £50,000, you’ll pay 20% on your capital gains.
Each person is entitled to a minimum allowance, below which you don’t need to pay any Capital Gains Tax. As of 2021, the minimum allowance has been set at £12,300. If your net capital gains for this year are below that you don’t have to pay any CGT.
HMRC allows couples who are either married or in a civil partnership to pool their minimum allowance, meaning your threshold is £24,600 instead.
You can’t carry your unused minimum allowance to future years.
Both the same-day and bed-and-breakfasting (or 30-day) rules are designed to prevent what’s known as wash-trading – basically, quick trades to tactically incur capital losses.
If you sell and buy (or buy and sell) the same cryptoasset within a 24-hour period, then your cost basis for the trade will be the price you purchased them for that day i.e. it doesn’t go into your overall pool, but rather becomes its own, separate pool.
The bed-and-breakfasting rule is the same, but applies over a 30-day period.
Let’s say over the course of a few years you purchased 30 ETH for a total of £12,000, giving you a cost basis of £400 per ETH. You sell ten ETH on July 7 for £6000 and buy five ETH on August 2 for £2500.
In this case, your cost basis for the ETH you sold in July will be worked out in reference to the ETH you repurchased in August i.e. the cost basis for those five ETH will be £500, while the cost basis for the remaining five ETH will remain £400.
These calculations can obviously get very complex very quickly, which is why we suggest using a crypto accounting app like Koinly, CoinTracker or CryptoTaxCalculator help you automatically track and calculate your crypto tax obligations.
If you donate your cryptocurrency to a registered charity, it’s not considered a capital gains event and you can claim the amount (calculated as a fair price for the cryptocurrency at the time it’s donated) as a deduction on your tax return.
If you’ve lost access to your coins by losing your public or private keys, HMRC doesn’t consider this to be a capital gains event, because the assets still technically exist in the distributed ledger, which means they belong to you. This means you can’t claim the stolen coins as a capital loss.
However, if it can be shown there is no prospect of recovering the private key or accessing the cryptoassets held in the corresponding wallet, a negligible value claim could be made.
You may be able to claim the value of the coins as a capital loss.
However, you may need to provide detailed evidence proving that you owned the coins, including identity-linked transactions to and from the wallet in question and other proof of use and ownership.
Broadly, this can be offset against capital gains arising in the same or future tax years. Where the loss arising from a disposal to a ‘connected person’ then it can only be offset against gains arising from disposals made to that same person.
When calculating a loss, you can take into account the cost of acquisition and other incidental costs associated with that transaction, such as transaction fees, advertising costs, professional fees to draw of a contract and costs of making a valuation or apportionment to compute the loss.
Ask yourself: would this pass muster with an insurance company? If the answer is no, then it’s likely that HMRC won’t be impressed either.
HMRC doesn’t consider losing cryptoassets to theft or fraud to be a capital gains event, because the assets still technically belong to you. This means you can’t claim the stolen coins as a capital loss.
HMRC may however accept a negligible value claim where a person pays for, then receives, cryptoassets which subsequently turn out to be worthless.
While HMRC’s guidance suggests that this may be possible, an alternative argument might be that the asset to be acquired did not become of negligible value but rather never had any value in the first place. If HMRC was to make this argument, then no loss would be available (indeed, HMRC’s own manuals stress this point, going so far as to capitalise the word “become”).
Those who do not receive cryptoassets they pay for may not be able to claim a capital loss.
Those who pay for and receive cryptoassets, may be able to make a negligible value claim to HMRC if they turn out to be worthless.
Buying cryptocurrency with regular currency (i.e. the pound) is not a capital gains event and doesn’t have to be reported on your tax return.
Every time you sell, trade or convert a cryptocurrency – whether you’re going from one crypto to another, selling your crypto for fiat currency – you trigger a capital gains event. The capital gain or loss is determined by working out the value in pounds of the new cryptocurrency and comparing that to the value of the old cryptocurrency when you first acquired it.
Dom buys 1 bitcoin for £12,000. Six months later, he uses that bitcoin to purchase 40 ETH when their value is £500 each. This means the effective value of his bitcoin at the time of trade is £20,000.
£20,000 – £12,000 = £8,000
Dom’s capital gain for the trade is £8,000 and this amount will be added to his net capital gains for the year.
Understandably this can all get pretty complicated pretty quickly, which is why we suggest using a crypto accounting software like Koinly, CoinTracker or CryptoTaxCalculator to keep accurate records and do these calculations for you.
HMRC doesn’t make any distinction between selling/trading crypto and using crypto to buy goods or services. So, even if you’re swapping crypto for a concert ticket, you’ll still need to calculate your capital gains based on the price of the asset at the time it was transferred out of your possession.
CoinJar Card is a fully-featured Mastercard that automatically converts your crypto to cash when you make a transaction.
As with all other transactions that involve converting your cryptocurrency into regular currency, this will trigger a capital gains event and will need to be reported to HMRC. Whether the trade results in a capital gain or loss will determine whether you need to add or subtract the amount from your overall capital gains for the financial year.
This is, obviously, less than ideal and we hope that the guidance around this type of transaction changes as products like CoinJar Card become more and more common.
In the meantime, CoinJar makes it easy to keep track of your capital gains with accountant-ready summaries of your crypto transactions. Click here to find out more.
HMRC treats stablecoins like USDC exactly the same as every other cryptocurrency, so converting your bitcoin to USDC and vice-versa will be considered a capital gains event and any gain or loss will need to be added to your net capital gains.
Over the last couple of years, trading in crypto derivatives such as futures, margin and CFDs has become a massive part of the crypto economy. Despite this, HMRC hasn’t issued any clear rules on how gains and losses from derivative trading should be treated.
HMRC is less concerned with what you’re trading, and more interested in how you’re trading it. Share trading tax implications will follow the same guidelines as currency trading taxes in the UK, for example.
If you are trading derivatives consistently and at a high volume it might make HMRC more inclined to view you as a professional trader rather than an investor.
If you are treated as a trader, then the gains are added to trading profits and income tax is payable. You will be able to claim an overall loss against your regular income.
It’s worth noting that if you claim a trader status to benefit from loss relief, HMRC often take a closer look. Due to this supposed advantage of investor status, day trading tax rules in the UK may toughen up in coming years.
If you are classified as an investor and need to report gains from trading derivatives you have two options: treat them as a regular capital gains event (although the short-term nature of most derivative trades might make you more prone to the same-day and bed-and-breakfasting rule); or treat them as miscellaneous income and add them to your overall taxable income for the year. Note that if you choose the latter, you might be able to claim an overall loss against your regular income.
The safe approach is to treat any gains as capital gains.
Note that the Financial Conduct Authority (FCA) has announced its intention to ban all retail derivatives trading in the UK from January 6, 2021.
Giving your cryptocurrency to someone else as a gift is a capital gains event. Giving a gift is treated the same as selling your cryptocurrency at market rates and you have to include any capital gain or loss in your end of year calculations.
If you’re the gift recipient, you only have to pay capital gains when you dispose of the gifted cryptocurrency. In this case, use the market value of the gift on the day you received it when calculating any capital gain or loss.
Hard forks occur when a blockchain transitions from one protocol to another. Usually this happens without any effect on the currency itself, but in certain cases it will lead to the creation of two parallel chains with two separate currencies. For instance, when Bitcoin Cash (BCH) was split from bitcoin itself in August 2017 it gave every holder of bitcoin at the time of the split an equivalent number of BCH.
In cases like this, HMRC splits the pooled cost basis of the original coin between it and the new fork, using the price of the two assets on the day after the fork.
So, let’s say you owned one bitcoin with a cost basis of £1000 when the Bitcoin Cash fork occurred. The next day, BTC is trading at £3000 and BCH is trading at £300. With an overall price of £3300, BTC will take 90.9% of the cost basis (i.e. £909) and the other £91 will go to BCH.
Airdrops are the normally free distribution of coins or tokens sent directly to your wallet. Airdrops are typically used by ICO issuers to increase awareness of a project, or by established projects to reward holders or increase token supply. Airdrops are unique in that they can occur without your knowledge or consent – but they still have both income and capital gains tax implications.
First, income tax. As a rule, airdrops don’t incur income tax unless you’ve done work or performed a service in order to receive them. In this case, the monetary value of the airdropped coins or tokens is treated as assessable income at the time of the airdrop. So, if you’re sent £200 worth of tokens in an airdrop as a reward for something you did, you need to report that as taxable income.
If you reported £200 as a taxable income and later sell, trade or convert your airdropped tokens, it’s treated as a normal capital gains event, with the cost basis being the value of the tokens when you first received them. This means that if you later sell those tokens for £300, you need to report a capital gain of £100.
Like most people, if you you haven't done work or performed a service in order to receive airdrops, then it’s treated as a normal capital gains event, with the cost basis being £0. This means that if you later sell, trade or convert your airdropped tokens for £300, you need to report a capital gain of £300.
The tax treatment of proceeds from cryptocurrency mining depends on whether you’re mining as a hobby or a business. There are no hard and fast rules to this distinction, but HMRC will look at the frequency, organisation and commercialisation of the mining activity when making a distinction.
If you’re mining coins as a hobby, then any coins you receive as a result of your mining will be added to your taxable income, using their value at the time you received them (minus any reasonable deductions). If you later sell or trade those coins, you’ll have to calculate your capital gains using their original value as the cost basis. Note that, as a hobbyist, you can’t claim any deductions for electricity or equipment.
If you’re mining as a business, then your mining income will be added to any trading profits when assessing your taxable income. You’ll also have to pay National Insurance contributions on any profits made. For more detail, see below.
An increasingly large number of cryptocurrencies offer holders what’s known as staking rewards. These rewards are a result of their Proof-of-Stake ‘consensus mechanism’ in which holders of these cryptocurrencies validate transactions and create new blocks by staking their cryptocurrency. If your holding is chosen to validate a block, you receive a staking reward in the form of new tokens.
HMRC is yet to issue any definitive ruling on staking proceeds, although it’s fair to assume that they’ll be taxed in the same way as mining. So, you need to report the value of the coins at the time they’re awarded as straight income, as well as any capital gain or loss made when they’re later sold, traded or converted.
(The same rules would presumably also apply to less common, but similar reward mechanisms i.e. Proof-of-Authority or Proof-of-Credit mechanisms by validators, agent nodes, guardian nodes, premium and proxy stakers, etc.)
As the popularity of DeFi surges, it’s becoming increasingly common for people to earn passive income on their crypto holdings by offering them as loans, using them as collateral or placing them in liquidity pools.
HMRC hasn’t issued any specific guidance on how to approach this income, but the safest approach is to assume that it’ll be treated like mining profits. This means you’ll need to report the value of the coins at the time they’re received as straight income, as well as any capital gain or loss made when they’re later sold, traded or converted.
Due to the highly volatile nature of DeFi products, you run a sizable risk of your position in some loan or asset pooling contracts being liquified due to unforeseen price movements. In this case you’ll have to report it as a capital gains event.
There is also the chance that HMRC might consider each step in the collateralisation/liquidity pooling process (i.e. the transition from ETH to wETH and back) to be its own capital gains event, although this is yet to be confirmed. If this is the case, you wouldn’t also have to report the tokens as taxable income.
Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs) allow individuals to purchase tokens or coins for a cryptocurrency that doesn’t exist yet, by depositing an existing cryptocurrency like bitcoin or Ethereum.
In the eyes of HMRC this amounts to a regular crypto-to-crypto transaction, with the taxable event occurring on the date that the new tokens/coins are received. When you sell the new tokens, the cost basis for the transaction will be the value of the cryptocurrency that you initially paid for it.
Let’s say you buy £3000 worth of Ethereum. Six months later, you use that Ethereum, now worth £4000, to take part in an ICO for a new project called Hammercoin (HMC). Nine months after that, Hammercoin finally launches and you receive 1 million HMC tokens, at a value of 0.4 pence each. Your capital gain on the transaction is £1000 – even if the price of Ethereum has changed between the time of your initial deposit and now.
A few months later you sell your HMC tokens for £2500, incurring a £1500 loss and resulting in an overall capital loss of £500.
Moving crypto between wallets you own – either privately or as an account holder on an exchange – is not a capital gains event. However, it’s important to keep track of these movements because automated crypto tax software like Koinly, CoinTracker or CryptoTaxCalculator needs a full record of your cryptocurrency’s transfer history in order to produce an accurate tax report.
Say, for example, that you sent one bitcoin from your CoinJar wallet to a private wallet and then on to a trading wallet on Binance. If HMRC can’t account for the transfer to your private wallet, it will assess the passage both to and from the wallet as a taxable event, potentially resulting in a much larger tax bill.
As HMRC doesn’t consider cryptocurrency to be a form of money, you can’t claim crypto donations to a registered pension scheme as a tax deduction.
As mentioned above, the vast majority of people who engage with cryptocurrency will be seen as investors by HMRC. However, if you are running an explicitly crypto-oriented business, such as a mining farm, or are operating as a trader rather than an investor, then the rules are different.
This question is harder to answer than it might first appear, but the answer is almost definitely no. Simple quantity of trades is not enough to render you a trader in the eyes of HMRC – you must also be operating in a business-like manner. While there’s no absolute definition of what constitutes a trader, some of the things to look for are:
- Significant capital investment.
- A focus on short-term profit generation, as opposed to long-term investment.
- High volume, repetitive and regular transactions which take place on a daily basis.
- The frequent use of derivative instruments.
- Buying and selling behaviour that suggests an active trading strategy, especially with regards to mitigating risk.
- Actually operating in a business-like manner i.e. business registration, strategy documents, office space, business planning, budgeting, consistent asset selection and business-like record keeping.
If you satisfy most or all of the above, then you may be operating as a cryptocurrency trader. If you’re uncertain whether you’re acting as a trader or not, we strongly suggest you secure the services of a crypto tax specialist to help work it out.
If you are a crypto trader, HMRC will treat you the same as any other cryptocurrency business. This means you may be liable not only to income tax on your gains, but also potentially to Corporation Tax, Stamp Duty, VAT and National Insurance contributions.
In short, things get a lot more complex and you’d be well advised to secure the services of a crypto tax specialist to help you navigate your return.
The short answer: yes. However, if you do want to hold both trading and investing accounts, it’s important to ensure that they exist in separate wallets and experience a minimum of cross-contamination i.e. don’t keep sending coins back and forth between them.
This also means it’s possible to be a cryptocurrency trader and a stock market investor and vice versa.
Basically, if you’re operating as a cryptocurrency trader it means that you’ll be taxed as a sole trader. Rather than assessing each trade as a capital gains event, sells are seen as trading income, while buys are considered trade purchases. So, much like a regular business, it’s all about income and expenses.
At the end of the year, you’ll tally your income and your expenses – including the difference between the value of your portfolio at the beginning and end of the year – and the profits will be subject to all the relevant business taxes. Anything left over will be added to your overall taxable income. However, if you make a loss you may be able to deduct that from your other income for the year.
Being a cryptocurrency trader gives you access to many of the tax benefits available to small businesses. These include:
- Small Business Tax incentives apply to certain industries in the UK, but not the crypto traders unless they are worth less than £15k, in which case there is a sliding scale starting from £12k, where they would pay no business rates. If they employee people through PAYE there is also a relief for NI of up to £3k.
- Crypto trader loss rules apply as well. I wrote about this within the document, but there is no difference between a trader and investor in the UK
- Expenses: all business- and crypto-related expenses, such as hardware, software, trading fees and subscriptions can be claimed as deductions. Traders can also access up to £1 million between 1st January 2019 and 31st December 2020 (at which point the current plan is for it to drop back to £200,000) in small business instant asset write off.
- Increased likelihood of HMRC scrutiny: given the many tax concessions on offer to crypto traders, the HMRC is likely to take a keen interest in your activities.
- Extra admin: As a trader, you’re subject to more complex record-keeping and compliance requirements, which can cost both time and money. This can include: detailed trading records; a log of work time; clearly defined strategy documents; detailed research notes; and accurate business records.
- Keeping an eye on always changing laws and regulations: Crypto is a new industry in the eyes of HMRC, which means traders will need to stay up to date with constantly changing rules.
If you’re classified as a cryptocurrency trader and trade over £1000 per year then you’ll have to set up a sole trader.
For VAT purposes, bitcoin and similar cryptoassets are to be treated as follows:
- exchange tokens received by miners for their exchange token mining activities will generally be outside the scope of VAT on the basis that:
- the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration; and
- there is no customer for the mining service
- when exchange tokens are exchanged for goods and services, no VAT will be due on the supply of the token itself
- charges (in whatever form) made over and above the value of the exchange tokens for arranging any transactions in exchange tokens that meet the conditions outlined in VAT Finance manual (VATFIN7200), will be exempt from VAT under Item 5, Schedule 9, Group 5 of the Value Added Tax Act 1994.
The VAT treatments outlined above are provisional pending further developments; in particular, in respect of the regulatory and EU VAT positions.
If you’ve been earning income from mining crypto, then you’ll first have to work out whether you’re running a business or simply mining as a hobby. Much like with trading itself, there are no hard and fast rules here, but generally if you’re conducting business-like activity – i.e. registering a company, creating business plans, pursuing an active profit model, conducting the same activity in a regular, planned fashion – then HMRC is likely to see it as a business.
For mining, this means that all mined cryptocurrency must be reported as income in GBP at the time that it’s mined. This crypto is then added to the business’ trading stock – if it’s later sold or traded, the allowable cost is the value when it first came into your possession. Any income you make from selling, trading or staking crypto must also be reported – and a contribution made to the National Insurance scheme.
As a business you’re able to claim expenses such as hardware depreciation, software and electricity costs.
As a basic rule, if you’re receiving, sending, buying, selling or giving away cryptocurrency as part of your business – basically any income or expense rendered in cryptocurrency – then you’ll need to include the proceeds as part of your ordinary income. This means reporting the British pound equivalent of the transaction at the time that it occurs.
However, it’s likely that the business-like nature of each activity will be assessed separately. So, you might be running a crypto mining business, but taking interest on crypto loans as a hobbyist or investor.
Generally paying employees in cryptocurrency is treated the same as normal salary or wages. This means that you need to meet all your regular PAYE obligations based on the British pound value of the crypto you’re paying them on the day that it’s paid.
If you receive your salary in crypto, it’s generally considered to be regular PAYE income and needs to be added to your taxable income in its value in GBP on the day that it’s received. If you later sell or trade the crypto, you’ll need to report it as a capital gains event.
The UK tax year runs from April 6 to April 5 of the following year. When you lodge your tax return, you need to include all the crypto transactions that occurred between these two dates.
If you are lodging a paper return, it must be completed by October 31 of the same year. However, if you are lodging your tax return online you have until January 31 of the following year.
It’s important to meet these deadlines, because delays in filing your taxes can lead to penalties, fees and potentially even extra scrutiny from the HMRC.
Whether you’re an investor or trader, it’s vitally important that you keep clear, comprehensive records of all your cryptocurrency transactions. A proper record includes:
- The date of each transaction
- The value of the cryptocurrency in British pounds at the time of the transaction
- The purpose of the transaction (i.e. was it a gift, a donation or for personal use?)
- The details of the other party involved (even if it’s just their crypto wallet address)
You should also keep evidence of the following:
- Receipts of cryptocurrency purchases or transfers
- Cumulative totals of assets owned
- Exchange records
- Invoices for any agent, accountant or legal costs
- Digital wallet records and keys
- Any software costs associated with the management of your tax affairs
If you trade with any regularity, keeping these records can quickly become challenging.
Fortunately, CoinJar now offers comprehensive and easy-to-read tax statements to its users. All you need to do is:
- Login to your account through coinjar.com
- Click Settings and then ‘General’
- Go to ‘Reports & statements’, followed by ‘Transaction history statements’.
From there you can export your account statement, as well as a record of your Purchases & Sales (probably the one your accountant wants to see) and Deposits & Withdrawals. Simply choose which dates you want the report to cover and we’ll send it to your inbox.
While most reputable exchanges now offer users the ability to download comprehensive transaction records, compiling them into a single, HMRC-friendly document can still present challenges, especially if you’re operating across a number of wallets and cryptocurrencies.
We suggest using a crypto accounting software like Koinly, CoinTracker or CryptoTaxCalculator. These programs allow you to keep track of all your transactions in real-time, irrespective of where and when they take place. At the end of the financial year they’ll compile your transaction history into a single document that sets out your capital gains and losses in British pounds, allowing you to quickly and easily assess your tax obligations while also monitoring your overall portfolio performance.
CoinJar now offers full, secure transaction integration with Koinly, CoinTracker or CryptoTaxCalculator. This means that whenever you buy, sell or trade a cryptocurrency on CoinJar, the transaction will be ported directly to your CoinTracker, Koinly or CryptoTaxCalculator, ready for the end of the financial year.
Links to third-party websites will open new browser windows. Except where noted, CoinJar accepts no responsibility for the content on third-party websites.
CoinTracker is free for up to 25 transactions which should be sufficient for those HODLERS out there. For more active traders, CoinTracker has 10% off on all tax plans for new CoinTracker users via this affiliate link: https://www.cointracker.io/?a=coinjar
Koinly helps UK residents calculate their capital gains from crypto trading. You can also generate an Income report that shows your income from Mining, Staking, Airdrops, Forks etc.
You can receive 20% off on all plans until the end of July 2021 through this link: https://koinly.io/?via=COINJ21
CryptoTrader.Tax is used by thousands of Brits to automate all of their cryptocurrency tax reporting. You can sign up, generate reports, and test out the product completely for free! Only pay when you want to download your gains, losses, and income tax reports. No credit card required.
CryptoTrader.Tax is also offering 25% off all tax plans when you sign up using this link: https://cryptotrader.tax?fpr=coinjar
CryptoTaxCalculator offers an annual plan which covers all previous financial years from 2013-2021. So if you need to amend your tax return for previous tax years the plan has you covered all under the one pricing. They offer a 30 day money back guarantee and you can cancel your subscription anytime.
CoinJar has partnered with CryptoTaxCalculator to provide you with following discounts:
40% off for first-time subscribers
Coupon code: COINJAR40
Just sign up here and enter your code at checkout
While we’re firm believers in full tax compliance, there are still things you can do to ensure you’re not overpaying. These include:
- Track your transactions: the longer you wait to account for your crypto transactions the messier it’s going to be. Start using crypto accounting software like CoinTracker, Koinly or CryptoTaxCalculator to ensure you’re ready to go the moment tax season rolls around.
- Use your couple’s allowance: both you and your spouse/partner have the same £12,300 minimum allowance. Do a tax-free transfer of a portion of your assets into their name to ensure you’re both claiming your full allowance.
- Deduct away: if you’re a trader or are running a crypto business, you could be eligible to claim significant deductions on your regular income.
- Disclose everything: people think that because bitcoin is anonymous their transactions can’t be tracked, but in fact the opposite is true – on the blockchain everything can be tracked and major exchanges like Coinbase are giving HMRC user data. If HMRC feels you’ve been deliberately hiding your crypto trading, you could be liable for severe fees and penalties.
- Talk to an expert: crypto taxation is confusing and rapidly changing territory. If you’re uncertain where you stand or what your obligations might be, then talk to an expert.