Crypto Tax UK in 2024: Everything You Need to Know

If you’ve engaged in any sort of cryptocurrency transaction over the last year, it’s highly likely that you’re going to have to report it in your tax return. Transactions include, but are not limited to, buying, selling, trading, mining, staking, giving and/or receiving cryptocurrency. And, this applies whether the transaction happened in the UK, America or even one of this country’s many affiliated tax havens. Hello Bermuda!

Basically, if you’ve ever used crypto, Her Majesty’s Revenue & Customs (HMRC) wants to know about it.

But actually working out your cryptocurrency tax can be complicated and there are a lot of different facets you need to consider when preparing your tax return.

Yet with HMRC keeping UK crypto investors squarely in the spotlight, it’s more important than ever that you know what you’re doing and how to report your tax obligations correctly.

To help you on your way, we’ve compiled a comprehensive guide to the current rules surrounding cryptocurrency and tax in the UK.

While this guide is based on the latest information from HMRC, we’re not tax experts and the information you’ll find below shouldn’t be considered a substitute for professional advice.

If you need more specific guidance, visit HMRC’s guide to cryptoassets or contact them directly on 0300 200 3300.

How does HMRC view cryptocurrency?

HMRC’s view on cryptocurrency is, in a word, evolving. However, there are a few things we know for certain.

First, they don’t view cryptocurrency as money but rather as an asset, like buying a share in a company. This means that selling or disposing of your cryptocurrency will result in a capital gains event. This is even if you’re using that cryptocurrency to purchase something.

To put it another way, this means the tax rules that apply to the buying and selling of shares also apply to the buying and selling of cryptocurrencies.

Second, they distinguish between three different types of cryptoassets (their preferred terminology). These are: Exchange tokens; utility tokens; and security tokens.

The vast majority of cryptocurrencies are exchange tokens, which refers to their ability to be exchanged for value or held as investments. Utility tokens are those that can only be used within certain frameworks (i.e. fan tokens issued by a football club), while security tokens represent real world assets or debts.

HMRC suggests that all three will be considered similarly from a tax perspective, but in the unlikely event that you’re dealing extensively in utility and security tokens you may have to reach out to HMRC for specific guidance.

Finally, the tax that you’ll have to pay on any given transaction depends on two things: whether you’re an investor or a trader; and whether the transaction is considered a capital gain or assessable income.

Am I an investor or trader?

First thing you need to do is work out whether you’re classified by HMRC as an investor or a trader.

Investor

An investor is someone who is primarily buying and selling cryptocurrencies as a personal investment tool. In this case, your income will be derived primarily from capital gains, as well as staking, forks and airdrops.

Most people who engage with cryptocurrencies will be considered investors and, as a general rule, their cryptocurrency transactions will be subject to Capital Gains Tax (CGT).

Trader

A trader is someone whose primary activity and source of income is the buying and selling of cryptocurrency. Rather than assessing each transaction as a capital gains event, traders treat their profits as personal income instead.

Becoming a trader isn’t simply a question of trading cryptocurrency. You need to trade with sufficient frequency, volume and sophistication that you’re running a one-person financial trading operation.

HMRC is at pains to point out the high and exceptional nature of this threshold – basically, if you’re coming here for tax advice it probably doesn’t apply to you. You can find more information about the requirements and consequences of becoming a cryptocurrency trader here.

If you’re a regular trader, you will be liable to pay both Income Tax and National Insurance (NI). This is because HMRC views multiple trading transactions as a source of income-generating activity. Whereas with investing, these tend to be seen as more one-off type transactions.

Capital gains tax (CGT)

HMRC classifies digital currency as an asset, much like a house or a share in a company, which means that you need to assess your capital gains every time you sell, trade or give away your crypto. We go into all the different types of capital gains events in more detail below.

Note that a capital gains event only occurs when you actually do something with your crypto. If you simply buy and HODL, then you don’t need to pay tax on your cryptocurrency, even if the value of your portfolio increases (or decreases) significantly.

Capital gains

If you make a profit on a transaction, then you’ll need to pay tax on your capital gain. For instance, say you buy 1 Bitcoin at £7000 (this is what’s known as your “cost basis”). Then you sell it six months later for £10,000 then you’ve made a capital gain of £3000. You will need to pay tax on that amount.

Allowable costs

Your allowable cost is the cost of the cryptoasset you acquired minus any available deductions. These include transaction fees charged by an exchange, or network fees charged to put the transaction on the blockchain. And, any professional fees relating to the sale (relevant primarily if you’re conducting over-the-counter sales).

So, in the above example, if an exchange charged you £5 to sell your Bitcoin, your capital gain would actually be £2995.

Pooling your cryptoassets

If you have bought an asset multiple times, you’re allowed to pool all your acquisition costs together to create an average price.

Let’s say you purchase one Bitcoin in 2017 for £3000 and then buy another Bitcoin in 2019 for £7000. This means the pooled cost basis of your two Bitcoin is now £5000. If you then sell one of your Bitcoin for £9,000, your capital gain will be £4000.

Capital losses

If, on the other hand, your cryptocurrency is worth less when you sell it than when you purchased it, you’ve made a capital loss. So, if you buy one Bitcoin at £7000 and then sell it six months later for £4000, you’ve taken a capital loss of £3000.

Capital losses can be used to offset capital gains either in the same financial year or in subsequent financial years. Let’s say you made a £5000 capital gain on one trade and a £3000 capital loss on another. In this case your overall capital gain is £2000, because your loss partially offsets the gain.

Capital losses can be carried forward for up to four years, but they must be used if you make a capital gain in a subsequent year. Capital losses cannot be used to offset your income from work.

Negligible value claims

This is crypto, so the likelihood that at some point you bought a token whose value is now zero is reasonably high.

In this case you can make a negligible value claim, which effectively means you sell the asset at a price of zero – even if you technically still own it. Your capital loss in this case is the entirety of your pooled purchase price.

It’s important to note that assets cannot have been of negligible value when you acquired them, they must have become of negligible value while you have owned them.

The timing of a loss is key as they cannot be carried into a previous tax year. As such, if possible, a negligible value relief claim should be made as soon as possible. When a loss has been crystallised, it can be carried forward and offset against future capital gains.

Calculating your capital gains

When it comes to calculating your net capital gains, HMRC doesn’t differentiate between different types of asset, so the profits you make from selling crypto, shares or any other asset are all bundled in together. (Property is considered separately as it’s taxed at a higher rate.)

The formula is simple:

Total Capital Gains–Total Capital Losses (incl. previous years) = Net Capital Gains

Net capital gains example

Sarah has invested £5000 in Ethereum for a pooled price of £150 and £5000 in Basic Attention Token (BAT) at 25p.

Three months later she sells half her Ethereum when the price reaches £200 and receives £3,333. Her capital gain on the transaction is:

£3333 – £2500 = £833

When the market tanks six months later, Sarah sells the rest of her Ethereum at £120 for £2000. At the same time she also sells half of her BAT for 18p, receiving £1800.

£2000 – £2500 = -£500

£1800 – £2500 = -£700

This means that at the end of the financial year, Sarah has an £833 capital gain and a £1,200 capital loss.

£833 – £1200 = -£367

Sarah has made a net capital loss of £367 and won’t have to pay any capital gains tax. However, the following year the market soars and Sarah’s BAT are suddenly worth 75 cents each. She decides to sell the rest of her holdings for £7500.

£7500 – £2500 = £5000

When she calculates her net capital gain for the year, she also claims her loss from the previous year.

£5000 – £367 = £4633

What’s my capital gains tax rate?

The amount of tax you’ll need to pay on your capital gains is determined by both your overall taxable income and the amount of capital gains you’ve made.

As a general rule, if your taxable income for the financial year is less than £6,000 in the 2023/2024 tax year, you don’t have to pay any CGT.

However, if you don't use this allowance within the tax year, it won't roll over, so you'll lose it. Remember that for the 2024/25 tax year, this allowance will drop to £3,000.

If your taxable income is between £6,000 and £50,270 in the 2023/2024 tax year, you’ll pay 10% on your capital gains.

If your taxable income is over £50,270 in the 2023/2024 tax year, you’ll pay 20% on your capital gains.

Minimum gains allowance

Each person is entitled to a minimum allowance, below which you don’t need to pay any Capital Gains Tax. As of 2023, the minimum allowance has been set at £6,000. If your net capital gains for this year are below that you don’t have to pay any CGT.

HMRC allows couples who are either married or in a civil partnership to pool their minimum allowance, meaning your threshold in the 2023/2024 tax year is £12,000 instead.

You can’t carry your unused minimum allowance to future years.

Capital gains exceptions

Same-day and bed-and-breakfasting rules

Both the same-day and bed-and-breakfasting (or 30-day) rules are designed to prevent what’s known as wash-trading – basically, quick trades to tactically incur capital losses.

If you sell and buy (or buy and sell) the same cryptoasset within a 24-hour period, then your cost basis for the trade will be the price you purchased them for that day i.e. it doesn’t go into your overall pool, but rather becomes its own, separate pool.

The bed-and-breakfasting rule is the same, but applies over a 30-day period.

Let’s say over the course of a few years you purchased 30 ETH for a total of £12,000, giving you a cost basis of £400 per ETH. You sell ten ETH on July 7 for £6000 and buy five ETH on August 2 for £2500.

In this case, your cost basis for the ETH you sold in July will be worked out in reference to the ETH you repurchased in August i.e. the cost basis for those five ETH will be £500, while the cost basis for the remaining five ETH will remain £400.

These calculations can obviously get very complex very quickly, which is why we suggest using a crypto accounting app like CryptoTaxCalculator, Koinly or Coinpanda to help you automatically track and calculate your crypto tax obligations.

Donations

If you donate your cryptocurrency to a registered charity, it’s not considered a capital gains event and you can claim the amount (calculated as a fair price for the cryptocurrency at the time it’s donated) as a deduction on your tax return.

Lost keys

If you’ve lost access to your coins by losing your public or private keys, HMRC doesn’t consider this to be a capital gains event, because the assets still technically exist in the distributed ledger, which means they belong to you. This means you can’t claim the stolen coins as a capital loss.

However, if it can be shown there is no prospect of recovering the private key or accessing the cryptoassets held in the corresponding wallet, a negligible value claim could be made.

You may be able to claim the value of the coins as a capital loss.

However, you may need to provide detailed evidence proving that you owned the coins, including identity-linked transactions to and from the wallet in question and other proof of use and ownership.

Broadly, this can be offset against capital gains arising in the same or future tax years. Where the loss arising from a disposal to a ‘connected person’ then it can only be offset against gains arising from disposals made to that same person.

When calculating a loss, you can take into account the cost of acquisition and other incidental costs associated with that transaction, such as transaction fees, advertising costs, professional fees to draw of a contract and costs of making a valuation or apportionment to compute the loss.

Ask yourself: would this pass muster with an insurance company? If the answer is no, then it’s likely that HMRC won’t be impressed either.

Theft/fraud

HMRC doesn’t consider losing cryptoassets to theft or fraud to be a capital gains event, because the assets still technically belong to you. This means you can’t claim the stolen coins as a capital loss.

HMRC may however accept a negligible value claim where a person pays for, then receives, cryptoassets which subsequently turn out to be worthless.

While HMRC’s guidance suggests that this may be possible, an alternative argument might be that the asset to be acquired did not become of negligible value but rather never had any value in the first place. If HMRC was to make this argument, then no loss would be available (indeed, HMRC’s own manuals stress this point, going so far as to capitalise the word “become”).

Those who do not receive cryptoassets they pay for may not be able to claim a capital loss.

Those who pay for and receive cryptoassets, may be able to make a negligible value claim to HMRC if they turn out to be worthless.

An investor’s guide to crypto transactions

Buying cryptocurrency

Buying cryptocurrency with regular currency (i.e. the Pound) is not a capital gains event and doesn’t have to be reported on your tax return.

Selling/trading cryptocurrency

Every time you sell, trade or convert a cryptocurrency – whether you’re going from one crypto to another, selling your crypto for fiat currency – you trigger a capital gains event.

The capital gain or loss is determined by working out the value in pounds of the new cryptocurrency and comparing that to the value of the old cryptocurrency when you first acquired it.

Example

Dom buys 1 Bitcoin for £12,000. Six months later, he uses that bitcoin to purchase 40 ETH when their value is £500 each. This means the effective value of his bitcoin at the time of trade is £20,000.

£20,000 – £12,000 = £8,000

Dom’s capital gain for the trade is £8,000 and this amount will be added to his net capital gains for the year.

Understandably this can all get pretty complicated pretty quickly, which is why we suggest using a crypto accounting software like CryptoTaxCalculator, Koinly or Coinpanda to keep accurate records and do these calculations for you.

Using cryptocurrency to make purchases

HMRC doesn’t make any distinction between selling/trading crypto and using crypto to buy goods or services. So, even if you’re swapping crypto for a concert ticket, you’ll still need to calculate your capital gains based on the price of the asset at the time it was transferred out of your possession.

Making purchases with CoinJar Card

CoinJar Card is a fully-featured Mastercard that automatically converts your crypto to cash when you make a transaction.

As with all other transactions that involve converting your cryptocurrency into regular currency, this will trigger a capital gains event and will need to be reported to HMRC. Whether the trade results in a capital gain or loss will determine whether you need to add or subtract the amount from your overall capital gains for the financial year.

This is, obviously, less than ideal and we hope that the guidance around this type of transaction changes as products like CoinJar Card become more and more common.

In the meantime, CoinJar makes it convenient to keep track of your capital gains with accountant-ready summaries of your crypto transactions. Click here to find out more.

Stablecoins

HMRC treats stablecoins such as USDC exactly the same as every other cryptocurrency, so converting your Bitcoin to USDC and vice-versa will be considered a capital gains event and any gain or loss will need to be added to your net capital gains.

Derivatives trading

Over the last couple of years, trading in crypto derivatives such as futures, margin and CFDs has become a massive part of the crypto economy. Despite this, HMRC hasn’t issued any clear rules on how gains and losses from derivative trading should be treated.

HMRC is less concerned with what you’re trading, and more interested in how you’re trading it. Share trading tax implications will follow the same guidelines as currency trading taxes in the UK, for example.

If you are trading derivatives consistently and at a high volume it might make HMRC more inclined to view you as a professional trader rather than an investor.

If you are treated as a trader, then the gains are added to trading profits and income tax is payable. You will be able to claim an overall loss against your regular income.

It’s worth noting that if you claim a trader status to benefit from loss relief, HMRC often take a closer look. Due to this supposed advantage of investor status, day trading tax rules in the UK may toughen up in coming years.

If you are classified as an investor and need to report gains from trading derivatives you have two options.

The first is to treat them as a regular capital gains event (although the short-term nature of most derivative trades might make you more prone to the same-day and bed-and-breakfasting rule.

Or, second, treat them as miscellaneous income and add them to your overall taxable income for the year. Note that if you choose the latter, you might be able to claim an overall loss against your regular income.

The safe approach is to treat any gains as capital gains.

Note that the Financial Conduct Authority (FCA) has announced its intention to ban all retail derivatives trading in the UK from January 6, 2021.

Gifts

Giving your cryptocurrency to someone else as a gift is a capital gains event. Giving a gift is treated the same as selling your cryptocurrency at market rates and you have to include any capital gain or loss in your end of year calculations.

If you’re the gift recipient, you only have to pay capital gains when you dispose of the gifted cryptocurrency. In this case, use the market value of the gift on the day you received it when calculating any capital gain or loss.

Hard forks

Hard forks occur when a blockchain transitions from one protocol to another. Usually this happens without any effect on the currency itself, but in certain cases it will lead to the creation of two parallel chains with two separate currencies.

For instance, when Bitcoin Cash (BCH) was split from Bitcoin itself in August 2017 it gave every holder of Bitcoin at the time of the split an equivalent number of BCH.

In cases like this, HMRC splits the pooled cost basis of the original coin between it and the new fork, using the price of the two assets on the day after the fork.

So, let’s say you owned one Bitcoin with a cost basis of £1000 when the Bitcoin Cash fork occurred. The next day, BTC is trading at £3000 and BCH is trading at £300.

With an overall price of £3300, BTC will take 90.9% of the cost basis (i.e. £909) and the other £91 will go to BCH.

Airdrops

Airdrops are the normally free distribution of coins or tokens sent directly to your wallet. Airdrops are typically used by ICO issuers to increase awareness of a project, or by established projects to reward holders or increase token supply.

Airdrops are unique in that they can occur without your knowledge or consent – but they still have both income and capital gains tax implications.

First, income tax. As a rule, airdrops don’t incur income tax unless you’ve done work or performed a service in order to receive them.

In this case, the monetary value of the airdropped coins or tokens is treated as assessable income at the time of the airdrop. So, if you’re sent £200 worth of tokens in an airdrop as a reward for something you did, you need to report that as taxable income.

If you reported £200 as a taxable income and later sell, trade or convert your airdropped tokens, it’s treated as a normal capital gains event, with the cost basis being the value of the tokens when you first received them.

This means that if you later sell those tokens for £300, you need to report a capital gain of £100.

Like most people, if you you haven't done work or performed a service in order to receive airdrops, then it’s treated as a normal capital gains event, with the cost basis being £0.

This means that if you later sell, trade or convert your airdropped tokens for £300, you need to report a capital gain of £300.

Mining

The tax treatment of proceeds from cryptocurrency mining depends on whether you’re mining as a hobby or a business. There are no hard and fast rules to this distinction, but HMRC will look at the frequency, organisation and commercialisation of the mining activity when making a distinction.

If you’re mining coins as a hobby, then any coins you receive as a result of your mining will be added to your taxable income, using their value at the time you received them (minus any reasonable deductions).

If you later sell or trade those coins, you’ll have to calculate your capital gains using their original value as the cost basis. Note that, as a hobbyist, you can’t claim any deductions for electricity or equipment.

If you’re mining as a business, then your mining income will be added to any trading profits when assessing your taxable income. You’ll also have to pay National Insurance contributions on any profits made.

Staking

An increasingly large number of cryptocurrencies offer holders what’s known as staking rewards. These rewards are a result of their Proof-of-Stake ‘consensus mechanism’ in which holders of these cryptocurrencies validate transactions and create new blocks by staking their cryptocurrency.

If your holding is chosen to validate a block, you receive a staking reward in the form of new tokens.

As a general rule, HMRC treats returns from staking as 'miscellaneous income'. This means that you need to report the value of the coins at the time you take control of them as income, as well as any capital gain or loss made when they’re later sold, traded or converted.

You have an annual £1,000 tax-free allowance for miscellaneous income, which can be used to cover profits from staking.

Note that there are situations where staking income will be treated as a capital gain instead of as income. There are no hard and fast rules here (and even HMRC admits this is confusing), but if the returns are known in advance, it's probably income.

If the returns are variable/speculative, it's probably a capital gain. Similarly, if returns are paid periodically it's likely income. Whereas if it's returned as a lump sum at the end of the contract it's likely a capital gain.

In some cases, a staking contract may result in a change of 'beneficial ownership', essentially meaning that someone else controls your coins while they're being held in the contract.

This will often result in a new token being provided to the staker. If this is the case, then the transition into and out of the staking contract will be considered a capital gains event and the cash value of the tokens at the point they're both deposited into and withdrawn from the contract will have to be reported.

The same rules will also apply to less common, but similar reward mechanisms i.e. Proof-of-Authority or Proof-of-Credit mechanisms by validators, agent nodes, guardian nodes, premium and proxy stakers, etc.

For more information, see HMRC's guidance on the matter.

Loans/liquidity pools and other DeFi income

As the popularity of DeFi surges, it’s becoming increasingly common for people to earn passive income on their crypto holdings by offering them as loans, using them as collateral or placing them in liquidity pools.

HMRC considers each step in the collateralisation / liquidity pooling process (i.e. the transition from ETH to wETH and back) to be its own capital gains event. As a result, you'll have to report the cash value of the tokens at every step of the process.

There is an exception for some forms of exchange-based lending and liquidity pooling. The test is whether the "beneficial ownership" of the token has changed; in short, whether someone else controls your coins. If so, it will be considered a CGT event.

In addition, you’ll need to report the value of any tokens accrued in interest as straight income, as well as any capital gain or loss made when the tokens are later sold, traded or converted.

This income will be treated as 'miscellaneous income'. You have an annual £1,000 tax-free allowance for miscellaneous income, which can be used to cover profits from DeFi interest.

Note that there are situations where staking income will be treated as a capital gain instead of as income. There are no hard and fast rules here (and even HMRC admits this is confusing), but if the returns are known in advance, it's probably income.

If the returns are variable/speculative, it's probably a capital gain. Similarly, if returns are paid periodically it's likely income, whereas if it's returned as a lump sum at the end of the contract it's likely a capital gain.

Due to the highly volatile nature of DeFi products, you run a sizable risk of your position in some loan or asset pooling contracts being liquified due to unforeseen price movements.

In this case, you do not have to report a capital gains event because the transaction has been conducted by the borrower.

For more information, see HMRC's guidance on the matter.

IDOs/ICOs/IEOs

Initial DEX Offerings (IDOs), Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs) allow individuals to purchase tokens or coins for a cryptocurrency that doesn’t exist yet, by depositing an existing cryptocurrency like Bitcoin or Ethereum.

In the eyes of HMRC this amounts to a regular crypto-to-crypto transaction, with the taxable event occurring on the date that the new tokens/coins are received. When you sell the new tokens, the cost basis for the transaction will be the value of the cryptocurrency that you initially paid for it.

Example

Let’s say you buy £3000 worth of Ethereum. Six months later, you use that Ethereum, now worth £4000, to take part in an ICO for a new project called Hammercoin (HMC).

Nine months after that, Hammercoin finally launches and you receive 1 million HMC tokens, at a value of 0.4 pence each. Your capital gain on the transaction is £1000 – even if the price of Ethereum has changed between the time of your initial deposit and now.

A few months later you sell your HMC tokens for £2500, incurring a £1500 loss and resulting in an overall capital loss of £500.

Moving crypto between wallets

Moving crypto between wallets you own – either privately or as an account holder on an exchange – is not a capital gains event.

However, it’s important to keep track of these movements because automated crypto tax software like CryptoTaxCalculator, Koinly or Coinpanda need a full record of your cryptocurrency's transfer history in order to produce an accurate tax report.

Say, for example, that you sent one Bitcoin from your CoinJar wallet to a private wallet and then on to a trading wallet on Binance. If HMRC can’t account for the transfer to your private wallet, it will assess the passage both to and from the wallet as a taxable event, potentially resulting in a much larger tax bill.

Pension contributions

As HMRC doesn’t consider cryptocurrency to be a form of money, you can’t claim crypto donations to a registered pension scheme as a tax deduction.

How does tax work for cryptocurrency traders and businesses?

As mentioned above, the vast majority of people who engage with cryptocurrency will be seen as investors by HMRC. However, if you are running an explicitly crypto-oriented business, such as a mining farm, or are operating as a trader rather than an investor, then the rules are different.

Am I a trader?

This question is harder to answer than it might first appear, but the answer is almost definitely no.

Simple quantity of trades is not enough to render you a trader in the eyes of HMRC – you must also be operating in a business-like manner. While there’s no absolute definition of what constitutes a trader, some of the things to look for are:

• Significant capital investment.
• A focus on short-term profit generation, as opposed to long-term investment.
• High volume, repetitive and regular transactions which take place on a daily basis.
• The frequent use of derivative instruments.
• Buying and selling behaviour that suggests an active trading strategy, especially with regards to mitigating risk.
• Actually operating in a business-like manner i.e. business registration, strategy documents, office space, business planning, budgeting, consistent asset selection and business-like record keeping.

If you satisfy most or all of the above, then you may be operating as a cryptocurrency trader. If you’re uncertain whether you’re acting as a trader or not, we strongly suggest you secure the services of a crypto tax specialist to help work it out.

Working out your tax as a trader/cryptocurrency business

If you are a crypto trader, HMRC will treat you the same as any other cryptocurrency business. This means you may be liable not only to income tax on your gains, but also potentially to Corporation Tax, Stamp Duty, VAT and National Insurance contributions.

In short, things get a lot more complex and you’d be well advised to secure the services of a crypto tax specialist to help you navigate your return.

Can I be both a trader and an investor?

The short answer: Yes. However, if you do want to hold both trading and investing accounts, it’s important to ensure that they exist in separate wallets and experience a minimum of cross-contamination i.e. don’t keep sending coins back and forth between them.

This also means it’s possible to be a cryptocurrency trader and a stock market investor and vice versa.

What does it mean to be a cryptocurrency trader?

Basically, if you’re operating as a cryptocurrency trader it means that you’ll be taxed as a sole trader. Rather than assessing each trade as a capital gains event, sells are seen as trading income, while buys are considered trade purchases. So, much like a regular business, it’s all about income and expenses.

At the end of the year, you’ll tally your income and your expenses – including the difference between the value of your portfolio at the beginning and end of the year – and the profits will be subject to all the relevant business taxes. Anything left over will be added to your overall taxable income. However, if you make a loss you may be able to deduct that from your other income for the year.

Benefits of being a cryptocurrency trader

Being a cryptocurrency trader gives you access to many of the tax benefits available to small businesses. These include:

• Small Business Tax incentives apply to certain industries in the UK, but not the crypto traders unless they are worth less than £15k, in which case there is a sliding scale starting from £12k, where they would pay no business rates. If they employee people through PAYE there is also a relief for NI of up to £3k.
• Expenses: All business- and crypto-related expenses, such as hardware, software, trading fees and subscriptions can be claimed as deductions. Traders can also access up to £200,000 in small business instant asset write off.

This is a change to in previous years. The UK government may provide new tax incentives like they did between 1st January 2019 and 31st December 2020.

Negatives to being a cryptocurrency trader

Self-employed traders have to pay National Insurance on any profits made in addition to their Income Tax bill. And unfortunately, any losses you may have made in previous years will not stop you from being liable to pay the NI in full.

If you make more than £125,140 from your trading and other income sources, you’ll probably end up with a large Income Tax and National Insurance bill to pay. This is because your Personal Allowance will drop to zero, and you will also pay a higher rate of tax on income over £100,000.

Increased likelihood of HMRC scrutiny: Given the many tax concessions on offer to crypto traders, the HMRC is likely to take a keen interest in your activities.

Extra admin: As a trader, you’re subject to more complex record-keeping and compliance requirements, which can cost both time and money. This can include: Detailed trading records; a log of work time; clearly defined strategy documents; detailed research notes; and accurate business records.

Keeping an eye on always-changing laws and regulations: Crypto is a new industry in the eyes of HMRC, which means traders will need to stay up to date with constantly changing rules.

Do I have to set up as a sole trader and register for VAT?

If you’re classified as a cryptocurrency trader and trade over £1000 per year then you’ll have to set up a sole trader.

For VAT purposes, bitcoin and similar cryptoassets are to be treated as follows:

Exchange tokens received by miners for their exchange token mining activities will generally be outside the scope of VAT on the basis that:

• The activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration; and
• there is no customer for the mining service.
• When exchange tokens are exchanged for goods and services, no VAT will be due on the supply of the token itself.
• Charges (in whatever form) made over and above the value of the exchange tokens for arranging any transactions in exchange tokens that meet the conditions outlined in VAT Finance manual (VATFIN7200), will be exempt from VAT under Item 5, Schedule 9, Group 5 of the Value Added Tax Act 1994.

The VAT treatments outlined above are provisional pending further developments; in particular, in respect of the regulatory and EU VAT positions.

Cryptocurrency mining as a business

If you’ve been earning income from mining crypto, then you’ll first have to work out whether you’re running a business or simply mining as a hobby.

Much like with trading itself, there are no hard and fast rules here. But generally if you’re conducting business-like activity – i.e. registering a company, creating business plans, pursuing an active profit model, conducting the same activity in a regular, planned fashion – then HMRC is likely to see it as a business.

For mining, this means that all mined cryptocurrency must be reported as income in GBP at the time that it’s mined.

This crypto is then added to the business’ trading stock – if it’s later sold or traded, the allowable cost is the value when it first came into your possession.

Any income you make from selling, trading or staking crypto must also be reported – and a contribution made to the National Insurance scheme.

As a business you’re able to claim expenses such as hardware depreciation, software and electricity costs.

Loans, interest, staking and other forms of cryptocurrency-related business income

As a basic rule, if you’re receiving, sending, buying, selling or giving away cryptocurrency as part of your business – basically any income or expense rendered in cryptocurrency – then you’ll need to include the proceeds as part of your corporate income. This means reporting the British pound equivalent of the transaction at the time that it occurs.

However, it’s likely that the business-like nature of each activity will be assessed separately. So, you might be running a crypto mining business, but taking interest on crypto loans as a hobbyist or investor.

Paying employees in cryptocurrency

Generally paying employees in cryptocurrency is treated the same as normal salary or wages. This means that you need to meet all your regular PAYE obligations based on the British pound value of the crypto you’re paying them on the day that it’s paid.

If you receive your salary in crypto, it’s generally considered to be regular PAYE income and needs to be added to your taxable income in its value in GBP on the day that it’s received. If you later sell or trade the crypto, you’ll need to report it as a capital gains event.

Reporting Your Tax

The UK tax year runs from April 6 to April 5 of the following year. When you lodge your tax return, you need to include all the crypto transactions that occurred between these two dates.

If you are lodging a paper return, it must be completed by October 31 of the same year. However, if you are lodging your tax return online you have until January 31 of the following year.

It’s important to meet these deadlines, because delays in filing your taxes can lead to penalties, fees and potentially even extra scrutiny from the HMRC.

What records do I need to keep?

Whether you’re an investor or trader, it’s vitally important that you keep clear, comprehensive records of all your cryptocurrency transactions. A proper record includes:

• The date of each transaction
• The value of the cryptocurrency in British pounds at the time of the transaction
• The purpose of the transaction (i.e. was it a gift, a donation or for personal use?)
• The details of the other party involved (even if it’s just their crypto wallet address)

You should also keep evidence of the following:

• Receipts of cryptocurrency purchases or transfers
• Cumulative totals of assets owned
• Exchange records
• Invoices for any agent, accountant or legal costs
• Digital wallet records and keys
• Any software costs associated with the management of your tax affairs

How can I manage all these transaction records?

If you trade with any regularity, keeping these records can quickly become challenging.

Fortunately, CoinJar now offers comprehensive tax statements to its users. All you need to do is:

• Login to your account through coinjar.com
• Click Settings and then ‘General’
• Go to ‘Reports & statements’, followed by ‘Transaction history statements’.

From there you can export your account statement, as well as a record of your purchases and sales (probably the one your accountant wants to see) and deposits and withdrawals. Simply choose which dates you want the report to cover and we’ll send it to your inbox.

Automate your tax return through CryptoTaxCalculator, Koinly or Coinpanda integrations

While most reputable exchanges now offer users the ability to download comprehensive transaction records, compiling them into a single, HMRC-friendly document can still present challenges. Especially if you’re operating across a number of wallets and cryptocurrencies.

We suggest using a crypto accounting software like CryptoTaxCalculator, Koinly or Coinpanda.

These programs allow you to keep track of all your transactions in real-time, irrespective of where and when they take place.

At the end of the financial year they’ll compile your transaction history into a single document that sets out your capital gains and losses in British pounds. This allows you to quickly and easily assess your tax obligations while also monitoring your overall portfolio performance.

CoinJar now offers full, protected transaction integration with CryptoTaxCalculator, Koinly or Coinpanda.

This means that whenever you buy, sell or trade a cryptocurrency on CoinJar, the transaction will be ported directly to your preferred crypto tax software account, ready for the end of the financial year.

Disclaimer: CryptoTaxCalculator, Koinly or Coinpanda, CoinTracker and Accointing are not CoinJar services. If you use these services you’ll be subject to the applicable terms and conditions of use for these products, including a separate privacy policy, which may differ from CoinJar’s privacy policy.

You should read and understand all applicable terms for CryptoTaxCalculator, Koinly, Coinpanda, CoinTracker and Accointing before using them.

Links to third-party websites will open new browser windows. Except where noted, CoinJar accepts no responsibility for the content on third-party websites.

Special offer for CryptoTaxCalculator, Koinly or Coinpanda

We’re delighted to share some apps that offer big discounts to CoinJar customers.

CryptoTaxCalculator is giving 1000 free CoinJar transactions, plus 30% off your first year (on all paid plans) using code COINJARUK and the following link: https://cryptotaxcalculator.io/?via=coinjar.

Built to fully support HMRC guidelines. Promo code expires on 1 May 2024.

Koinly is offering 30% off your first Koinly tax report using the code COINJARUK24 at checkout using this link:

https://koinly.io/?ref=coinjar

The offer is valid until October 31, 2024.

Terms and conditions:

1. Get 30% off your first Koinly tax report by using code COINJARUK24 at checkout at Koinly.io
2. New customers only
3. Koinly reserves the right to end the offer at any time.
4. This offer cannot be used in conjunction with any other offer.
5. Offer valid until June 30th 2024.
6. One use per customer.
7. Excludes Koinly CPA and B2B customers.

Links to third-party websites will open new browser windows. Except where noted, CoinJar accepts no responsibility for the content on third-party websites.

CoinJar works to integrate with various companies who assist their customers in their tax affairs. This integration involves testing data flows and assessing the accuracy of the capital gains and income tax output.

As of 31/01/24, three apps (CoinTracker, Accointing and Crypto.com Tax) are still in this testing phase. CoinJar has been unable to verify the accuracy of the tax output calculations, even though they are integrated with our platform.

CoinJar has contacted these specific three entities in relation to these inaccuracies with only one confirming (CoinTracker) their acknowledgement and none have provided an timeframe/update for resolution.

Important: CoinJar UK Limited does not warrant the adequacy, accuracy or completeness of any tax calculation by any app, including those mentioned above and CoinJar expressly disclaims any liability for errors or omissions therein. Users are personally responsible for evaluating the accuracy, completeness or usefulness of any information or other content available on these sites.

Disclaimer: CryptoTaxCalculator, Koinly and Coinpanda or any other crypto tax apps are not CoinJar services. If you use these services, you’ll be subject to the applicable terms and conditions of use for these products, including a separate privacy policy, which may differ from CoinJar’s privacy policy. You should read and understand all applicable terms before using them.

Tips for minimising your crypto tax

While we’re firm believers in full tax compliance, there are still things you can do to ensure you’re not overpaying. These include:

• Track your transactions: The longer you wait to account for your crypto transactions the messier it’s going to be. Start using crypto accounting software like CryptoTaxCalculator, Koinly or Coinpanda or to ensure you’re ready to go the moment tax season rolls around.

• Use your couple’s allowance: Both you and your spouse/partner have the same £6,000 minimum allowance. Do a tax-free transfer of a portion of your assets into their name to ensure you’re both claiming your full allowance.

• Deduct away: If you’re a trader or are running a crypto business, you could be eligible to claim significant deductions on your regular income.

• Disclose everything: People think that because Bitcoin is anonymous their transactions can’t be tracked, but in fact the opposite is true – on the blockchain everything can be tracked and major exchanges like Coinbase are giving HMRC user data. If HMRC feels you’ve been deliberately hiding your crypto trading, you could be liable for severe fees and penalties.

• Talk to an expert: Crypto taxation is confusing and rapidly changing territory. If you’re uncertain where you stand or what your obligations might be, then talk to an expert.

References

• https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-tax-for-businesses
• https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-for-individuals
• https://tokentax.co/guides/crypto-taxes-in-united-kingdom/
• https://koinly.io/guides/hmrc-cryptocurrency-tax-guide/
• https://koinly.io/crypto-taxes-uk/
• https://www.cointracker.io/blog/cryptocurrency-taxation-in-the-united-kingdom
• https://www.syndicateroom.com/eis#what%20is%20eis%20tax%20relief
• https://www.etctax.co.uk/capital-losses-on-crypto-assets-frauds-thefts-faked-deaths/
• https://www.daytrading.com/taxes/uk
• https://smallbusiness.co.uk/a-small-business-guide-to-capital-assets-2465662/
• https://taxscouts.com/investor-capital-gains-tax-returns/trading-vs-investing-how-are-they-taxed-differently/

Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you should not expect to be protected if something goes wrong. Take 2 minutes to learn more.

Cryptoassets traded on CoinJar UK Limited are largely unregulated in the UK, and you are unable to access the Financial Service Compensation Scheme or the Financial Ombudsman Service. We use third party banking, safekeeping and payment providers, and the failure of any of these providers could also lead to a loss of your assets.

We recommend you obtain financial advice before making a decision to use your credit card to purchase cryptoassets or to invest in cryptoassets. Capital Gains Tax may be payable on profits.

CoinJar’s digital currency exchange services are operated in Australia by CoinJar Australia Pty Ltd ACN 648 570 807, a registered digital currency exchange provider with AUSTRAC.

And in the United Kingdom by CoinJar UK Limited (company number 8905988), registered by the Financial Conduct Authority as a Cryptoasset Exchange Provider and Custodian Wallet Provider in the United Kingdom under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended (Firm Reference No. 928767)._