Pixel

Cryptoassets - The Latest From HMRC

Gary Green
Gary Green
December 4, 2019

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:

  1. exchange tokens
  2. utility tokens
  3. 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
  • NI
  • Stamp Tax
  • VAT

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
  • Airdrops
  • Venture capital schemes involving tokens
  • VAT
  • Pooling

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.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
Contact Form Demo (#1)
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
October 23, 2023
PAYE Investigations

Dive into the world of PAYE investigations. Uncover the facts, implications, and insights in this informative blog

September 29, 2023
London-based accountancy business acquired by Key Business Consultants

Exciting Merger Alert: London's Reed Taylor Benedict & Benedict Leff Accountants Acquired by Key Business Consultants.

September 18, 2023
Tax Tribunals – An Overview

Dive into the realm of Tax Tribunals: A comprehensive overview shedding light on this crucial aspect of taxation.

September 2, 2023
What Is A COP8?

Learn about COP8, a tax-related Code of Practice issued by HMRC for suspected tax avoidance cases. Discover when COP8s are used and the penalties associated with them.

August 20, 2023
HMRC Compliance Checks

Navigate the complexities of HMRC compliance checks confidently. Our comprehensive guide covers everything you need to know about handling tax inspections and more.

August 6, 2023
Tax Evasion and Tax Fraud

Untangling the complexities of tax evasion and fraud. Delve into our comprehensive guide to understand the differences, consequences, and preventive measures.

June 18, 2023
Which Jobs In The UK Have The Best Salary Growth Potential?

Explore the top UK jobs with the highest salary growth potential. Uncover promising career paths and industries that offer substantial earning potential.

May 23, 2023
How To File Dormant Accounts Through Companies House

Learn the step-by-step process of filing dormant accounts through Companies House with our comprehensive guide.

May 19, 2023
Customs Declaration Service (CDS) and VAT

Discover how the Customs Declaration Service (CDS) and VAT intertwine in this insightful blog article.

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
Newsletter Form (#2)
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2022 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram