A significant number of small businesses in the UK do not take full advantage of HMRC-approved...
A lot of our clients have been asking us how HMRC plans to treat cryptoassets for business and personal tax purposes.
Cryptoassets, also known as cryptocurrency, are "digital representations of value". They are often talked about in the context of Distributed Ledger Technology (blockchain), because they all use some form of DLT.
The Cryptoasset Taskforce report does NOT consider them to be currency or money. They define three things as cryptoassets:
- exchange tokens
- utility tokens
- security tokens
The key thing to remember is that the tax ramifications only depend on how and why you use the assets. The type or definition of the token is irrelevant.
We would like to stress that this is a fast moving and complicated area of tax law. If in doubt, always work with a professional accountant. Or, at the very least, read the HMRC pages on the business tax and personal tax implications.
Business Tax - Primary Implications
The key takeaway from the HMRC guidance is that dealing in crypto is not a way to circumvent your normal tax obligations. Whether you buy, sell, mine or accept crypto tokens, you may still be liable for:
- Capital Gains Tax
- Corporation Tax
- Income Tax
- Stamp Tax
When it comes to filling in your tax return, remember that UK returns are calculated in Sterling. You'll need to take care to apply a sensible exchange rate to your tokens. And keep clear and consistent records of the methodology you used.
Business Tax - Other Things to Consider
One thing you (or your tax advisor) will need to determine is the nature of your interactions with the crypto tokens. If your buying and selling constitutes a "trade", you can count receipts and expenses as part of the calculation of trading profit.
If you "mine" for crypto currency, the way you do it will affect the tax you pay. A recreational miner (on a laptop during the evening for example) could count his crypto profits as "miscellaneous income". However, if you are mining full time, this would probably be considered a trading activity. Again, the relevant tax rules for trading would need to be applied.
You should also be aware that HMRC (along with the task force) does not consider crypto tokens to be money. As such, any corporation tax legislation that refers specifically to money doesn't apply here. It may well be that your crypto asset activity falls under the auspices of the Capital Gains Tax rules.
The HMRC paper is long and detailed and you should check it out if you have any questions about:
- PAYE and NI if you pay staff in tokens
- Hard and soft forks
- Venture capital schemes involving tokens
Personal Tax Implications
The implications for personal tax are a little simpler, but you must make sure you follow the rules carefully. In most cases, your crypto tokens will be considered a personal investment. Therefore, they will be subject to Capital Gains Tax if and when you sell them.
If you get your tokens from your employer (as a salary for example) then you would have to pay Income Tax and NI just like on a cash salary. This would also apply if you got them from mining.
HMRC expects very detailed record keeping when it comes to personal crypto holding. You need a separate record for every transaction, and the onus is on the individual (rather than the exchange or broker) to maintain the records.
A few other key takeaways:
- HMRC does not consider dealing/speculating in crypto tokens as gambling
- Tokens are not money, so they can't be used to obtain tax relief when contributing to a pension scheme
- For Inheritance Tax purposes, crypto tokens are considered "property"
If you'd like to discuss this, or any other aspect of tax, business planning or investment, please get in touch.