HMRC’s watchful eye: Unveiling the intricacies of Crypto taxation

Cryptocurrency or cryptoassets as HMRC like to call them is essentially cash but in a digital format.

HMRC consider cryptocurrencies to be a form of property, rather than currency. This means that gains or losses from cryptocurrency transactions are normally subject to CGT, rather than income tax.

Popular examples of crypto include Bitcoin, Litecoin, Ethereum Exchange tokens and Stablecoins.

All of this appears to be reasonably straight forward however, where HMRC are involved, nothing is as simple as it appears and there are some complexities you need to be aware of:

  1. If you mine cryptocurrencies, the value of the coins you receive is treated by HMRC as income for tax purposes and therefore, subject to income tax
  2. If you receive crypto as payment for goods or services, this is treated as income (including air drops) and the value of the crypto at the time of the transaction is subject to income tax
  3. If you are exchanging one type of crypto for another (e.g. Ethereum for Bitcoin) then this transaction is deemed to be a disposal for CGT purposes and will be subject to CGT. The same applies when you cash in your crypto
  4. If you lend your crypto, the tokens you receive are considered by HMRC to be income for tax purposes and taxed the same way as bank / building society interest you receive

Why the concern?

Crypto transactions essentially take place on an exchange platform and there are many different exchange platforms, not just here in the UK. 

Did you know that all major / popular cryptocurrency exchange platforms have agreed to inform HMRC of any cryptocurrency transactions that exceed £5,000? (And we are not just taking about the UK platforms).

Over the past few years HMRC have been collecting data on the crypto transactions (worldwide) and are now looking to start enquiring into individuals and companies who have not been declaring their crypto income and / or gains.

Why do we say this?

Well, HMRC have just released (29/11/2023) their crypto income and gains voluntary disclosure (just like their let property disclosure for those who did not declare their rental income).

HMRC normally only open these voluntary disclosures shortly before they issue large numbers of enquiries, so it may be time to consider what crypto transactions have been taking place over the past few years before HMRC ask.

Please remember, it’s important to keep accurate records of all crypto transactions, including dates and prices at the time which they were made. This will make it easier to calculate your CGT and / or income tax liability when it comes to filing your tax return and could help to avoid any disputes with HMRC.

If you have any questions, please contact me directly.