Cryptoassets, which may also sometimes be referred to as cryptocurrency, are a type of digital asset. Many of us will have heard of the likes of Bitcoin, but there are many others.
Whilst not considered to be the same as normal currency, or stocks and shares, cryptocurrency can sometimes be used as a method of payment, and the value of cryptoassets can fluctuate.
Cryptoassets – Key tax implications
For individuals owning, receiving or disposing of cryptoassets, it is important to be aware of any Capital Gains Tax (CGT) and Income Tax liabilities that may arise.
Subject to an individual’s annual CGT allowance (currently £6,000), CGT is payable on the gain made when an asset is disposed of – this could include selling, exchanging for goods or services, exchanging for an alternative cryptoasset, gifting or donating.
There are also a number of activities that may give rise to Income Tax liabilities, where cryptoassets are concerned. In these instances, it will be important to distinguish whether the income is to be treated as trading or miscellaneous income.
The rate of income tax that is payable will depend on the individual’s other income in the tax year, and it may become necessary to report cryptoasset income via a Self-Assessment Tax Return. It is therefore important to keep proper records of any transactions.
If you are a business engaging in cryptoasset activity, the nature of what you are doing with the asset will determine your tax liabilities – for example, an incorporated business trading in cryptocurrency will be subject to a Corporation Tax charge on any profits and losses, however the same may not be true for an unincorporated business.
The rules are intricate, and not always straightforward to apply, so we would recommend that you seek professional advice in relation to your circumstances.
Helping you to understand your tax liabilities
We realise that the tax implications of engaging in cryptoasset activity can be difficult to navigate, but failure to comply with reporting and payment obligations can lead to penalties.
Whether you are an individual or limited company, an accountant can help you to understand the relevant tax consequences and, indeed, how much tax you may be liable to pay.
They will be able to identify how any income, gain or profit that you have made should be treated for tax purposes, and they can also assist you to ensure that you are reporting to HMRC in the correct way.
To find out more about how we could help you, contact us today.