In short, if you’re earning cryptocurrency by way of mining it, or receiving it as a payment for goods/services rendered or, say, as a promotion – then this falls under regular taxable income. Therefore, you will owe tax on the complete fair market value of the crypto (the day on which you receive it) – and this will be at the regular income tax rate you’re paying.
Tax on cryptocurrency UK – why does it even exist in the UK?
Over its 10-year history, Bitcoin has fluctuated wildly in value at each point. For instance, those who bought it in 2008 (when it was worth only a few pennies) could have potentially made hundreds to thousands of pounds in profits almost 10 years later when its value rose to nearly £15,000.
However, today in the UK, you must pay tax on profits that are over £12,300 – no matter what your views are on the cryptocurrency’s validity, you will still pay tax on the profits made from them.
Are only crypto-traders taxed?
To determine if you’re liable to pay tax on crypto currency, you need to first see the method through which you acquired it to begin with. For example, you may be liable to pay tax if:
- You’re a crypto miner
- The crypto currency was provided as a benefit by your employer (in the form of a non-cash payment)
- Your business or company is backed by cryptocurrency (you trade through crypto and not fiat) – which means you’ll be paying both Income Tax and National Insurance.
- You’re actively trading in crypto – if you’re currently trading the kind of volumes considered by the HMRC as “financial trade”, then you must pay Income Tax.
See, the thing is when you’re trading crypto (which is distinct from other kinds of forex trading), HMRC does not treat it as ‘gambling’. This means you will always be liable to pay tax on the profits, no matter what.
You may be wondering how to know the amount of tax you’re liable to pay. Well, here’s a good rule of thumb: if your crypto profits are higher than the maximum allowance for Capital Gains Tax, then you must pay tax on crypt currency at either 10% (basic rate) and 20% (higher rate). More on that in just a moment.
The method for paying tax on crypto currency profits
As with any kind of tax that you are liable to pay on profits, you must do a tax return in order to disclose your income to the HMRC. If you’ve never done this before, it’s absolutely nothing to worry about, especially if you consult a tax attorney. For your knowhow, here are the steps you need to follow:
- Register for Self Assessment by no later than October 5;
- Ensure that your record of trading profits and expenses remains “good” throughout the tax year;
- Pay the tax owed by January 31;
- Calculate the tax at the first possible opportunity in order to prepare for the bill
The above steps are merely for informational purposes and should not be treated as legal advice. We strongly recommend speaking to a tax attorney in order to fully understand what kind of taxes you need to pay on cryptocurrency, if at all, that is.
Important to know: How the HMRC views crypto currency
Even though crypto-assets have become more common over the years, they are still relatively a new kind of asset – crypto-currencies in particular like Bitcoin, Ethereum, Ripple, etc. have become a popular investment vehicle. However, most people are not sure about the HMRC tax implications.
As far as HMRC’s views are concerned on crypto currency, they will always assess the facts on a case to case basis and then apply the necessary tax provisions according to the current law. The more the crypto currency sector develops, the more HMRC’s views are likely to develop too as a result. It’s solely for this reason that nearly all crypto currency investors, miners and traders seek the professional advice of a tax attorney to better understand the potential tax liabilities.
Now, with that said, the amount you pay either in the form of Capital Gains Tax or Income Tax Rates depends on your specific crypto currency activity: investing, mining, arbitraging, etc. However, it’s quite likely that the transactions you’re engaged in may potentially qualify as ‘non-taxable’ altogether. Furthermore, VAT must be taken into account as well, that is, if you’re trading as a business or company.
Final thoughts on “Do I have to pay crypto currency taxes?”
Just to quickly reiterate, there’s no such thing as a “crypt currency tax” or “Bitcoin tax” in the UK. Instead, you’re expected to pay Income Tax or Capital gains Tax, if there is any applicable on your crypto currency to begin with, that is.
As discussed, any applicable crypto tax that you pay depends solely on the transactions you’re making through crypto. So, if you’re making an income or profit through those crypto transactions, you’ll be paying Income Tax. If you’re making a capital gain through them, you’ll be paying Capital Gains Tax.
A common question many people have is: “Will I be paying tax on cryptocurrency UK for all gains made?”
The answer is no, because (thankfully) HMRC is rather generous on the subject of capital gains, giving each UK taxpayer an allowance for Capital Gains Tax to the tune of £12,300 – as discussed at the start of the article.
The UK does not levy a short-term/long-term Capital Gains Tax rate like other countries do – as such, all capital gains are subject to the same rates.
Assuming you’re in an income band of up to £50,270, your tax rate will be 10% (basic rate); an income band of up to £150,000 means 20% (higher rate); and an income band of higher than £150,000 means a tax rate of 20% as well (additional rate).
To gain more insightful advice on the tax on cryptocurrency UK which apply to you, get in touch with our experienced tax attorney.
