Accounting in cryptocurrency is becoming popular because any investment portfolio for individuals or legal entities could be taxed based on their income. The UK ranks 3rd in the world in online searches on cryptocurrencies (in one year), with a number of approx. 65 K unique searches. Despite the fact that cryptocurrencies are becoming increasingly tempting, tax transactions are not even known in broad terms. And one of the most important things when investing is to know the tax system beforehand.

For all those who hold cryptocurrencies, it should be known that it is the responsibility of each holder to keep their own records for each cryptocurrency transaction. This is more important as exchanges with crypto assets keep the records of traders for a short period. This can lead to the fact that when an individual tries to complete a tax return, the evidence no longer exists.

Cryptoassets are considered by HMRC as digital assets, therefore all records are subject to the rule that each wallet holds balances and transactions. The individual’s access to fiat currency could come from:

  • deposits into a bank account
  • use of an ATM for crypto-assets

HMRC does not consider trading in cryptocurrencies (selling or buying them) in the same way as gambling. The term ‘gambling’ is not defined in the Income Tax or Corporation Tax Acts, or in the Taxation of Chargeable Gains Act 1992.

Which taxes apply when you trade Cryptoassets (for Businesses)

If a company bases its activity or simply carries out activities that involve exchange tokens, they are obliged to pay the taxes related to their transactions, such as:

  • buying and selling exchange tokens
  • exchanging tokens for other assets
  • mining
  • providing goods or services in return for exchange tokens

Of course, the type by which transactions are taxed differs depending on who is involved in the business and what activities they carry out.

That is why HMRC will consider each case on its own basis. It will apply the relevant legislation in force to determine the correct tax treatment.

The amount of tax a business must pay will depend on its income, expenditure, profits, and gains. These must be declared annually to HMRC on either a:

  • self-assessment tax return (for individuals)
  • company tax return (for companies)

Which taxes apply when you trade Cryptoassets (for Individuals)

In most cases, individuals hold cryptocurrencies as a personal investment, most often for capital appreciation or to make certain purchases.

They will be required to pay capital gains tax when they dispose of their crypto assets.

Individuals will be required to pay Income Tax and National Insurance contributions on cryptocurrencies they receive from:

  • their employer as a form of non-cash payment
  • mining, transaction confirmation, or airdrops

If you are trading cryptocurrencies, or you may want to buy cryptocurrencies in the near future (Bitcoin, Ethereum, Litecoins, Ripple, etc.) and have any doubts about how you will be taxed, we can help you. Also, our experience in legal commerce can be a valuable asset for you. When we process your data for HMRC, we will also advise you on whether you should consider the relevant disclosure of your transactions to HM Revenue & Customs when completing the appropriate tax returns.

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