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.
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
September 21, 2021
How to Claim EIS Income Tax Relief in 2021

If you need to know how to claim EIS income tax relief and enjoy what is...

September 2, 2021
Recovery Loan Scheme - What Is It and How Do I Apply?

As businesses seek to re-open and recover from the global pandemic, there are various forms of...

August 16, 2021
The Super-Deduction Scheme - How Does It Work?

You may have heard the term 'super-deduction' recently and wondered if you could be affected by...

August 12, 2021
The Tax Benefits of Non-Domiciled Status for UK Residents

Having a Non-Domiciled Status if you reside in the United Kingdom can have great benefits for...

July 9, 2021
Stamp Duty Land Tax (SDLT) Surcharge for Non-UK Residents

Stamp Duty Land Tax (SDLT) rates have changed again for non-residents buying a home in England...

July 7, 2021
How Is Cryptocurrency Taxed & Do I Need to Fill A Self-Assessment?

Cryptocurrency may live online with no government control or borders, but if you are in the...

July 5, 2021
Venture Capital Schemes: Tax Relief Guide For Investors

When it comes to finding out what tax relief is available for investors using a venture...

July 2, 2021
Claiming Business Asset Disposal Relief in 2021

Business Asset Disposal Relief (BADR) used to be known as Entrepreneurs’ Relief before 6 April 2020....

June 30, 2021
What Is Form 17? Transfer Of Beneficial Ownership

As a general rule, the fall-back position for couples who live together with their spouse or...

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2021 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