All there is to know about cryptocurrency
Do you know your bitcoin from your ethereum and your NFT’s from your metamask? We give you the crypto low-down and why it's important to engage a crypto accountant.
What is cryptocurrency?
Cryptoassets or cryptocurrency has surged in popularity in recent years. You have probably heard of Bitcoin, Ripple, Litecoin or Ethereum. The word crypto means “secret” or “hidden” referrs to the secure technology used to guarantee who owns what and the ability to make payments. These currencies exist electronically, use a peer-to-peer system and isn’t regulated by a central bank or government… yet. The majority of cryptocurrencies, at the moment, are held by people who expect the value to rise.
HMRC and cryptocurrency
The tax treatment of cryptoassets continues to develop due to the evolving nature of the underlying technology and the areas in which cryptoassets are used. We expect HMRC’s approach and views on cryptocurrency will continue to evolve as the sector develops. We anticipate HMRC will publish amended or supplementary guidance as going forward.
Check with your WardWilliams Creative accountant about the current tax status of crytpocurrnecy and other assets, such as NFT’s.
What tax is owed on cryptocurrency?
Tax owed on cryptocurrency depends on how you acquired it. Mining crypto counts as a form of self employment, so any earnings over £1000 will require a payment of income tax and national insurance. Expenses can be offset against these earnings if used for mining, such as computer hardwear, broadband, electricity, accountant fees, digital wallets etc, if you are operating as a business trading crypto.
If you are an individual who has made a profit from selling cryptocurrency, you will need to pay capital gains tax on profits over £12,300 (as of 2022 – this amount can vary each year). You will only pay tax on the profits that go above the tax-free threshold. You may be eligible for capital gains tax of you sell your tokens, exchange your tokens for a different type of cryptoasset, use your tokens to pay for goods or services, give away your tokens to another person (unless it’s a gift to your spouse or civil partner). You do not need to pay Capital Gains Tax on the value of the tokens that you’ve already paid Income Tax on. You’ll still need to pay Capital Gains Tax on the gain you make after you’ve received them.
What records should you keep
Keep separate records for each transaction including:
- The type of tokens
- Date you disposed of them
- Number of tokens you’ve disposed of
- Number of tokens you have left
- Value of the tokens in £
- Bank statements and wallet addresses
- Records of the pooled costs before and after you disposed of them
Accountants who know their crypto from their elbow
The world of cryptocurrency is fast-evolving. UK tax regulations aren’t always fully understood by investors or crypto businesses. The implication of this can be significant. HMRC are increasingly active in monitoring cyrptocurrency revenues. They have been clear in reminding those with crypto that pleading ignorance wont wash. It’s important to make sure you review your tax affairs with an experienced crypto accountant.
Get in touch with WardWilliams Creative today to discuss your crypto activities, or if you are interested to learning more.