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Crypto Asset Tax Disclosures – Dealing with HMRC

Q: What are chargeable transactions?

What ‘event’ creates a point in time where tax is charged? At its simplest, if you are buying and selling the crypto ‘asset’ it is the point of sale that crystalises the tax. For example, let’s say I use an exchange like Coinbase, deposit £5,000 and buy 100 ‘Hopecoins’ at a cost of £5,000. Several months later the value has climbed, and I sell for £50,000, taking that ‘fiat’ currency out of the exchange and depositing it back in my own bank account. I have made a gain of £45,000 (minus any expenses such as platform fees if they were charged on the transaction). That £45,000 is the amount I will need to declare as a gain and I will be taxed on it, subject to any allowances and reliefs.

Q: What about other crypto income?

For example, what if an employer pays their employees’ wages using Bitcoin? If the crypto asset used as payment is a ‘readily convertible asset’ (HMRC is likely to take this view in relation to Bitcoin etc.) then the employer will need to deduct income tax and NICs from that payment, just the same as if the payment was in GB pounds, using the GB pound value at that time. The further complication is that, if that payment of Bitcoin is not encashed by the employee into GB Pounds immediately, and it subsequently goes up in value, Capital Gains Tax (CGT) may be due on that increase in value whenever those Bitcoins are sold or traded. In terms of ‘mining’ or ‘proof of work’ activity, unless the income was less than the equivalent of £1,000 in a tax year, then it will likely be taxable as ‘miscellaneous’ income. In some circumstances, if the activity is seriously conducted, the activity will count as a trade and again it will be subject to income tax, but with different rules on losses. The usual considerations around the deductibility of related expenses will apply. Again, if the assets are held and increase in value, any disposal may well attract CGT.

Q: How are businesses taxed in relation to crypto?

The rules for businesses regarding ‘trading’ are largely aligned with those for individuals. Unless the entity is in the business of trading crypto assets, it is unlikely that it will be trading crypto with the organisation, sophistication and regularity that would deem it a trade for tax purposes. If the crypto activity is not deemed to be a trade, then for companies, other areas of the Corporation Tax legislation will need to be considered, such as loan relationship rules, intangible fixed asset rules and chargeable gains.

Posted on 11 Dec 2023, by Jeremy Johnson

Crypto Asset Tax Disclosures – Dealing with HMRC

HMRC has launched a specific disclosure facility for people who have made profits on crypto currency or assets, but who have failed to pay tax on those profits.

We wrote a blog series in 2022 in relation to crypto assets and how and when a tax liability may arise. We have links to these below, if you are looking for some more detailed information on your specific circumstances.

Crypto currency is not treated as a fiat currency from HMRC’s perspective, instead it is treated as an asset. For most individuals, if a crypto currency, NFT or similar is sold for more than it is bought for, the profit will usually be taxable as a capital gain. In some limited circumstances for individuals, repeated buying and selling of crypto may be a ‘trade’, and income tax, rather than capital gains tax will then apply.

HMRC has started to obtain information from crypto exchanges about individual’s purchases and sales and, in some cases, has sent ‘nudge’ letters suggesting that this is reviewed in case tax has been missed. Now HMRC has announced it will launch a specific service for crypto disclosures.

Many people have been unaware of their tax obligations in relation to crypto profits this has prompted HMRC to focus on this area.

How Can We Help?

Over the years we have helped hundreds of people to make disclosures to HMRC where a mistake has been discovered and to get their tax affairs back on track. We can deal with the whole process, make sure that you benefit from allowances or reliefs available and ensure that you pay the lowest penalty appropriate to your circumstances.

Get In Touch

You can get in touch with our friendly and experienced team on: 0203 675 8122.
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Crypto Asset Tax Disclosures – Dealing with HMRC

HMRC has launched a specific disclosure facility for people who have made profits on crypto currency or assets, but who have failed to pay tax on those profits.

How Can We Help?

Get In Touch

What are chargeable transactions?

Am I ‘trading’ in crypto?

What about other crypto income?

How are businesses taxed in relation to crypto?

What records should I be keeping?

Our insights

Blogs & Resources

Let Property Rental Income Disclosure – What to do if you have undeclared rental income

GDPR Tax Credits – HMRC Disclosures and Enquiries

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