As cryptocurrency becomes more mainstream, governments across the globe have been grappling with how to tax cryptocurrencies. The United Kingdom is no exception, and HM Revenue and Customs (HMRC) issued specific guidance on the taxation of cryptocurrencies in December 2019.
Under UK tax law, cryptocurrencies are treated as property rather than currency. This means that they are subject to capital gains tax (CGT) or income tax, depending on how they are used.
If you are selling or exchanging cryptocurrency for fiat currency, goods, or services, you will be subject to CGT. CGT is calculated based on the profit you make from the disposal of the cryptocurrency. You are allowed a tax-free allowance of £12,300 per year (as of the tax year 2022/23), so any gains below this threshold are tax-free. However, if you make gains above the allowance, you will be subject to CGT at a rate of either 10% or 20%, depending on your total taxable income.
If you are using cryptocurrency as part of a business, you may be subject to income tax. This includes activities such as mining or trading cryptocurrencies as a business. Income tax is calculated based on the profits you make from your cryptocurrency activities, and the rate you pay depends on your total taxable income.
It’s important to keep accurate records of all cryptocurrency transactions, including the date, amount, and value in both cryptocurrency and fiat currency. This will help you calculate your taxable gains or income accurately and ensure you comply with HMRC regulations.
In summary, the taxation of cryptocurrencies in the UK is determined by how they are used. If you are using cryptocurrency for personal investment purposes, you will be subject to CGT. If you are using it as part of a business, you may be subject to income tax. Keeping accurate records is crucial to ensure compliance with HMRC regulations. As always, if in doubt, seek professional advice.
At Spherical Accountants, our expert tax consultants based in London, can help you plan your cryptocurrency taxes.
Get in touch to book an initial consultation by calling on 020 7859 4047 or by emailing on info@sphericalaccountants.co.uk
