Crypto Tax at Tax Time: What You Need to Know

Crypto tax: The sexiest subject around! If you’ve engaged in any cryptocurrency-related activity over the past year, it’s almost certain that you’ll need to report these transactions on your tax return.

Whether you’ve been , selling, trading, mining, staking, or even gifting crypto, these activities are all subject to taxation under UK law. And it doesn’t matter where the transaction took place, whether in the UK, the US, or even a popular offshore hub like Bermuda. If it involves cryptocurrency, His Majesty’s Revenue and Customs (HMRC) wants to know about it.

Calculating your crypto

Calculating cryptocurrency taxes isn’t always straightforward. The process can be complex, with multiple factors to consider when preparing your tax return.

With HMRC keeping a close eye on UK-based crypto investors, it’s more important than ever to ensure you’re fully compliant and accurately reporting your tax obligations. To help you navigate this intricate landscape, we’ve put together a covering everything you need to know about cryptocurrency tax in the UK. But here is what you need to get across first, before you go read the guide.

How does HMRC view cryptocurrency?

HMRC’s stance on cryptocurrency has evolved significantly in recent years, but there are some key principles that remain consistent.

Cryptocurrency as an Asset

HMRC does not as money. Instead, it treats it as an asset, similar to shares in a company.

This means that every time you sell, trade, or dispose of your crypto, it triggers a capital gains event. Even if you’re using your crypto to purchase goods or services, the transaction is still taxable.

So the same tax rules that apply to buying and selling shares also apply to cryptocurrencies.

Types of cryptoassets

HMRC cryptoassets into four main types:

Exchange tokens

These are the most common type of cryptocurrency, such as Bitcoin and Ethereum. They’re designed to be exchanged for value or held as investments.

Utility tokens

These tokens are used within specific ecosystems, such as fan tokens issued by sports teams or platforms.

Security tokens

These represent ownership in real-world assets or debts.

Stable Coins

These are tokens that minimise volatility, they are usually pegged to an underlying asset or commodity that is considered less volatile, such as USD or gold.

While HMRC generally treats all four types similarly for tax purposes, individuals dealing extensively in utility or security tokens may need to seek specific guidance from HMRC.

Paying tax

The amount of tax you owe depends on two key factors.

-Whether you’re classified as an investor or a trader.

-Whether the transaction is considered a capital gain or assessable income.

Crypto tax calculators

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Can HMRC track your crypto transactions?

The short answer is yes. HMRC can track your crypto trades. Through partnerships with cryptocurrency exchanges, HMRC has access to transaction histories and personal information provided during account sign-ups.

This collaboration enables them to identify individuals who may have failed to report their crypto earnings.

HMRC is taking crypto taxation seriously, especially with the implementation of the .

These regulations will facilitate the exchange of information between European tax authorities, making it easier for HMRC to uncover unreported gains.

The depth of HMRC’s investigation into past transactions depends on your actions.

-Underpayment due to genuine error: You may need to rectify discrepancies for up to four years.

-Lack of sufficient care: This could lead to a six-year review period.

-Deliberate misrepresentation or tax evasion: Such actions could trigger a full investigation and penalties.

By familiarising yourself with HMRC’s guidelines and seeking professional advice when needed, you can ensure that your crypto journey remains compliant with taxation laws.