Cryptocurrency Tax Returns

HMRC does not consider Cryptocurrency (exchange token) to be money or currency- like GBP. Instead, it’s seen as a property, which is a Capital Asset – just like a rental property or a share.

The government Cryptoasset Taskforce identifies 4 types of Cryptoassets: Exchange tokens, Utility tokens Security tokens and Stablecoins

• Exchange tokens – these are intended to be used as a method of payment and include cryptocurrencies like Bitcoin and Litecoin. They do not provide any rights or access to goods or services.
• Utility tokens – these provide the holder with access to particular goods or services on a platform usually using Distributed Ledger Technology (DLT).
• Security tokens – these may provide the holder with particular interests in a business, including debt due by the business or a share of profits in the business.
• Stablecoins – Stablecoins are another prominent type of cryptoasset. The premise is that these tokens minimise volatility as they may be pegged to something that is considered to have a stable value such as a fiat currency (government-backed, for example US dollars) or precious metals such as gold

The tax treatment of all types of tokens is dependent on the nature and use of the token and not the definition of the token.

In the UK, there is no specific Cryptocurrency tax or Bitcoin tax. Instead, your crypto will either be subject to Capital Gains Tax or Income Tax.

The Crypto tax you’ll pay depends on the specific transactions you’re making with your crypto. If you’re seen to be making an income, you’ll pay Income Tax. If you’re seen to be making a capital gain, you’ll pay Capital Gains Tax.

Actually, No. You only have to pay capital gains tax on overall gains above the annual exempt amount.

For 2021/22, the annual exempt amount is £12,300

If your taxable income is between £12,500 and £50,000, you’ll pay 10% on your capital gains.

If your taxable income is over £50,000, you’ll pay 20% on your capital gains

If an individual runs a business making profit from trading cryptocurrency, income tax rules take priority over capital gains.

There are cases where crypto is treated as income and thus attracts Income Tax. Cryptocurrency transactions that are classified as income are taxed at your regular Income Tax band. In some instances, you’ll also need to make National Insurance contributions on income from crypto too. In the UK, crypto is taxed as Income when it comes from:

• Getting paid in crypto – known as ‘Money’s worth’ and is subject to National Insurance too.
• Staking rewards
• Mining tokens
• Airdrops– in most instances.

Income tax rates

Income tax can also apply to where an individual runs a business ‘trading’ crypto, thus having taxable trading profits. In most circumstances, a person who trades on their own account is unlikely to meet the description of a ‘trader’ for income tax purposes and will more than likely fall within the capital gains tax regime.

You owe tax based on the point at which you sell your Bitcoin. HMRC describes this as your disposal of your crypto assets.

They define this as:

• Selling your crypto for fiat currency (e.g. GBP USD EUR)
• Exchanging between crypto and crypto (e.g. Bitcoin to Ether)
• Using crypto to pay for goods and services
• Giving away your crypto to someone else

From this point, you should work out what tax year you’re in. If your profits are above £12,300, you will have to declare this to HMRC and pay tax by 31st January. For instance, if you sell your crypto in May 2020, you owe tax for your earnings in the 2020/21 tax year. You pay this tax bill by 31st January 2021.

If you make a capital loss (you sell your crypto for less than you bought it), you can offset this against the gains. But if you do this, you will need to report the loss to HMRC. This can be done on your tax return. You can claim your losses up to 4 years from the end of the tax year that they occurred in.