Taxation of Cryptoassets

Crypto Assets

Gains and income from transactions involving cryptocurrency and other digital assets are taxed under UK law.

The applicable taxes will depend on the nature of transactions, on a case-by-case basis, so different rates and reliefs can apply depending on the facts. There is no crypto specific UK tax law (yet) so we rely on the application and interpretation of existing legislation and case law.

HMRC set out their view in the Cryptoassets Manual. This is continuously being reviewed and updated, as is their approach to compliance. Hyder, Director at Hawthorn Tax, was involved in forming HMRC’s view and drafting the first iteration of the Cryptoassets Manual during his time there.

General Rules

HMRC does not treat cryptocurrency as money or currency and this shapes its tax treatment.

Regardless of the type of crypto token, the taxation will depend on how it is used and the relevant facts surrounding it. HMRC uses its information powers to obtain details of UK users directly from crypto exchanges. It is therefore important that you properly consider your tax obligations in relation to your crypto activity, otherwise you risk being charged penalties and interest on any unpaid tax.

There are many different ways profits and gains can arise, some of the more common are:

  1. Buying and selling - gains after any applicable reliefs will generally be subject to capital gains tax. HMRC’s view is that only in exceptional circumstances would it expect individuals to buy and sell cryptoassets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade. If it does form a trade, profits/losses will be subject to income tax rules instead of capital gains tax.
  2. Use in business - if you already run a business, you may make payments in tokens or receive them as income. Generally, the amount you bring into your profit calculation will be the value of the tokens at the date they were incurred/earned.
  3. Fees for verifying transactions - whether it's Proof of Work or Proof of Stake, the income will likely be charged to tax as miscellaneous income and therefore subject to income tax.The evolving nature of cryptoassets means the tax position is evolving too. Tax law must be applied to the facts in each individual case to arrive at the correct assessment. This will usually require a tax professional with relevant experience. We have advised many clients on trading status, taxation of rewards/airdrops, residency, and disputes/discloses with HMRC.

Contact us today to ensure you're calculating and reporting your cryptocurrency properly; and making the most of available reliefs.

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