If you had some crypto currency – maybe you held Bitcoin, Ethereum, XRP or some of the other popular cryptos – and you sold some of them, guess what? Selling or swapping coins is taxable in the UK, so you have to tell the taxman! So yes, you pay tax on crypto currency and yes, you have to tell HMRC about this. But how? What do you have to know to be able to fill in your self-assessment tax return?
With the surge in crypto prices between November 2020 and June 2021 (when this article was written) you may well have taken some profit and sold some crypto currency. After all, Bitcoin went from around £9k to nearly £45k and is currently at £25k. Pretty much anyone who bought coins previously is sitting on a profit right now! For some people this surge in crypto values has been great news because they have taken profit … and now you have to pay tax on that profit. So if you are getting ready to complete your self-assessment tax return, where do you fill in the details of your crypto currency, and what do you put?
The first question is, which tax are you going to pay: Income Tax or Capital Gains Tax? The taxman’s view is that for most individuals you will be liable for Capital Gains Tax. In order to qualify to pay Income Tax, HMRC’s view is that you need to buy and sell crypto with a high level of frequency, organisation and sophistication – in other words it has to be a full time trading business. Actually this is good news, as being taxed as a Capital Gain has the potential to give you the lowest tax bill.
Taxing your crypto currency to capital gains is good news because everyone in the UK gets an annual CGT exemption. For 2020/21 and for 2021/22 this annual exempt amount is £12,300. So if your profit or gain on all your CGT transactions, not just your crypto currency, is less than this you don’t need to pay tax. Although you still have to report your gains on your tax return if the disposal proceeds are more than four times the annual exempt amount, ie £49,200 or more.
A really important point to note is that for tax purposes a taxable disposal of crypto happens when you:
· Sell crypto for real money
· Exchange or swap one crypto coin for a different coin
· Use crypto currency to pay for real stuff (yes, some retailers and credit card companies offer this facility)
· Give crypto coins away to someone else
HMRC charge tax on the Sterling value of your gain or profit. So you might need to work out what that is. Obviously if you sold your crypto assets for real money then the Sterling value is easy to work out as it will be on your bank statement! Anything else and you might need to work out what the valuation was on the date of the transaction.
Once you know how much you received, we then need to work out what your costs are. Obviously we can claim the cost of acquiring your crypto currency in the first place. You can also claim a deduction for most transaction fees, but not all. If you have lots of transaction fees then you will need to check the detail of this.
What if you were mining for coins? If you were buying and selling and mining on a big scale then you can probably claim to have been trading. Which means taxable as income tax – and thus claim tax relief on the costs of your mining. But if you were mining coins on a part-time or side hustle basis then the bad news is you don’t get a deduction for computer equipment and electricity, etc.
Most people will have a fairly big time gap between buying and selling their crypto. On the other hand, if you have been fairly active and buy and sell coins frequently then you need to look at the Same Day rule and the 30-Day rule. This can get complicated, so if this is you, check the taxman’s guidance …or ask your accountant for help!
If you are holding and trading your crypto through your limited company then there are more rules, because you also have to apply accounting standards. However, you are only taxable on any crypto you have disposed off in the same way as individuals. The big difference is that limited companies don’t get an annual exemption and are taxable on all their profits.
Where do you add crypto sales to your self-assessment tax return? There is a whole section on Capital Gains in your self-assessment tax return. You will need to fill out: boxes CG14 with the number of disposals, box CG15 with the total disposal proceeds, box CG16 with your allowable costs and box CG17 should then be pre-filled in with your profit or gains.
If you need help sorting this out then get in touch, at [email protected]