Cryptocurrency + Tax = Do you know the rules??

Do you know your Bitcoin from your Ethereum?  Your XRP from your Algorand?  If so, you might be interested to read this…especially if you have ‘realised’ some of your cryptocurrency.

Many individuals are unwittingly realising large gains that need to be reported to HMRC. They appear to have been watching the price of Bitcoin closely, being the largest and most well-known cryptocurrency, and now HMRC are warning crypto investors to disclose.

HMRC warning – it is time to disclose

With the January filing deadline looming, they appear to be increasing their efforts to crack down on crypto investors.

Apparently, HMRC are warning said investors to disclose by writing to them, indicating they have information which suggests they hold or have held, investments in cryptocurrency.  The warning comes as HMRC has the ability to obtain a full list of cryptocurrency holders by sending data requests to UK-based cryptocurrency exchanges and other financial organisations. However, even if HMRC haven’t written to you, you still must play by the rules and disclose accordingly.

Know your Crypto-tax facts!

Despite the renewed popularity of cryptocurrency and published guidance from HMRC there still appears to be a misconception as to when tax applies to cryptocurrency transactions.

The main examples of when (capital gains) taxes apply to cryptocurrency transactions are as follows:

• When you sell cryptocurrency for fiat (i.e. regular currency such as GBP or USD). Any gains from these transactions are taxable, even if you don’t withdraw the profits from the cryptocurrency exchange;
• Exchanging one cryptocurrency for another, for example, Bitcoin to XDC. You’ll pay tax on these gains, even if you haven’t converted the cryptocurrency back to fiat;
• Gifting cryptocurrency. If you gift some cryptocurrency to a friend or family member (other than your spouse or civil partner), you will potentially be deemed to have disposed of your cryptocurrency for its value at the date of gift;
• Using cryptocurrency to buy goods or services.

Do I need to worry about Income tax and National Insurance? 

Income tax and National Insurance won’t be as common unless you are running a business which is carrying on a financial trade in cryptoassets and you have taxable profits.  You will see in HMRC’s manual however, an individual who is mining cryptocurrency or staking it, ‘may’ be liable to income tax, but this will depend on other factors too.

What should I do if I have crypto transactions to disclose?

If these transactions occurred in the tax year ended 5th April 2021, then our advice is to get in touch with us as soon as possible so we can register you for Self-Assessment and try and file before the deadline of 31 January 2022.

Where the transactions occurred in an earlier tax year then it will be necessary to make a disclosure under the Digital Disclosure Service.

Further queries

For anyone based in Northern Ireland, you can contact us directly on 028 9032 9255 for individual queries or by email info@arthurboyd.co.uk.

To see the full range of accountancy and insolvency services we offer, please check out our website.