Financial trading income

Tax treatment of financial trading income

In exceptional circumstances, individuals may be classed as cryptoasset “financial traders” for some or all of their cryptoasset activity. This could be buying and selling cryptoassets, staking, mining or trading in cryptoasset derivatives.

Where this is the case, their profits are self-employed business profits, subject to income tax and national insurance. The capital gains regime for buying and selling cryptoassets is not applicable. Being classified as a trader rather than investor usually results in a higher tax bill.

If you are unsure if you are an investor or a trader, see our further guidance on this.

Investor or Trader?

If the individual is conducting a financial trade, then Income Tax and National Insurance will be applied to their business trading profits. The trading income is the sterling equivalent (on the date of receipt) of the cryptoassets received.

The individual will need to be registered as a sole trader business with HMRC for Self Assessment and file tax returns. You can register online, but it is recommended to seek the advice of a qualified tax professional before registering your cryptoassets trading business with HMRC. See our guidance on registration with HMRC.

How to Register for Self-Assessment

Trading allowance and expenses

The allowable trading expenses (under the normal income tax rules for businesses) are deducted from the receipts to calculate a trading profit or loss.

The tax rules for running your own business are complex. The HMRC Business Income Manual provides lots of guidance about the kind of expenses that can be deducted, but it is recommended you seek the help of a qualified tax professional.

Trading Allowance

From 2017/18 onwards, there is a ‘Trading Allowance’ of £1,000.

This is an automatic tax exemption that does not need to be claimed. Although it is called a ‘Trading Allowance’, it applies to both trading and miscellaneous income. Therefore, if the total trading and miscellaneous income for a tax year is less than £1,000 and the individual has no other self-employment, there is no tax to pay on this income and there is nothing to declare to HMRC.

However if you already file a Tax Return, it is recommended to declare the income and the use of the trading allowance, even where they net off to Nil taxable income.

If the income is more than the trading allowance

If the trading and miscellaneous income is more than the £1,000 Trading Allowance, the individual can choose to simply deduct the £1,000 from their total income (with no deduction for actual expenses incurred), or calculate the trading profit and net miscellaneous income under the normal rules (income less allowance expenses).

Losses from Financial Trading

You can elect to disapply the Trading Allowance and this could be beneficial if you have made a loss.

You will see from the detail on relevant Court Cases, that a number of taxpayers have argued they were trading on a commercial basis to benefit from loss relief, but only the Akhtar Ali case succeeded in the Courts.

The consequence of a successful HMRC challenge is that the trading loss cannot be offset against other income (ie employment); it can only be carried forwards against profits of the same trade.

Last updated

Was this helpful?