Taxation of Crypto Currencies
As an accountancy company in Welwyn Garden City, we are often asked about cryptocurrencies and how they play a role in the tax system. To help answer you’re questions, I’ve put together a short guide that hopefully helps answer any questions you have.
Cryptocurrencies amount to investing activity and any profits you make from the sale and disposal of Cryptocurrencies will be taxed as a capital gain by the HMRC.
Capital gains tax is when you have assets such as crypto coins and the asset appreciates in value, when you dispose of the asset you will be subject to capital gains tax.
Capital Gains Tax allowance for each individual amounts to £12,300, if your net gain (after cost and related expenses) is above £12,300 then you will be liable to pay capital gains tax on the gain. If you are a basic rate taxpayer you will be paying 10% tax and if you are a higher rate taxpayer you will be paying 20% tax.
The basic rate band for the tax year 2022-23 is £37,700 plus your personal allowance of £12,570 which means you will pay capital gains tax of 10% on crypto disposals if your total taxable income is £50,270 or less. The higher tax rate threshold of 20% on capital gains will apply if your taxable income exceeds £50,270.
When you dispose of a cryptocurrency, it could generate a loss or profit, the meaning of disposal for tax purposes includes:
- Selling cryptocurrency for money
- Exchanging the cryptocurrency for another type of crypto
- Using cryptocurrency to pay for other goods & services
- Giving a cryptocurrency to someone who isn’t your spouse or partner
What is the HMRC definition of Crypto?
- Exchange Tokens – used to make payments (e.g., bitcoin)
- Utility Tokens – Provide the holder with the right to access a good or service
- Security Tokens – Give the holder the right to profit and loss in a business venture
- Stable Coins – Coins that are pegged to another asset with a stable value such as fiat currency or precious metals such as gold
How are capital losses treated?
Losses made in cryptocurrencies can be offset against other capital gains in the current year and also be carried forward for future years and offset against any capital gains. However, it must be noted that capital losses cannot be carried back against gains of earlier years and capital losses can also not be offset against other types of income.
How we can help?
If you contact the team at Accountancy Assist, we offer a wide range of accounting services and can advise you on the most tax-efficient route to report your disposal of crypto assets and advise you of all allowable expenses/tax deductions to ensure you not only comply with HMRC regulations but also make use of all your allowances.
Ahmed Bayat FCCA (July 2022)