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Recap HomeCrypto Tax Guide (Lite)HMRC Cryptoassets Manual
  • A Technical Guide to Cryptocurrency Tax for UK Individuals
    • What are Cryptoassets?
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Cryptoassets?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income tax
      • VAT
      • Inheritance tax
      • Stamp Duty
    • How Much Tax Will I Pay?
    • New HMRC DeFi Guidance
      • Overview of HMRC guidance
      • 1️⃣Is the Reward Income or Capital?
      • 2️⃣Is Beneficial Ownership (BO) transferred?
      • 3️⃣Consider the Tax Treatment
        • Staker/Lender/Collateral Provider
          • Income Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1A
              • Example 2A
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1B
              • Example 2B
          • Capital Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1C
              • Example 2C
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1D
              • Example 2D
        • Borrower
    • Investor or Trader?
      • Badges of Trade Limitations
      • HMRC Approach
      • Court Cases involving Financial Traders
    • Capital Gains Tax
      • Calculating the Capital Gains Position
      • Disposal proceeds
      • Disposals to Connected Parties
      • Allowable costs for CGT
        • Exchange fees
        • Forks - affect on allowable costs
      • Capital Loss Claims
    • Income Tax
      • Financial trading income
      • Miscellaneous Income
      • Employment income
    • Fair Market Valuation
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🔄Trading Crypto to Crypto
    • 🛍️Purchases using Crypto
    • 🎁Gifts
    • 💍Spouse Transfers
    • 🎗️Gifts to Charity, CASCs & Bodies for a National Purpose
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
      • UK Employer
      • Overseas employer
      • National Minimum Wage (NMW)
    • 🚨Lost & Stolen Crypto
    • 🎲Gambling
    • 💧Liquidity Pools
      • Example - Liquidity pool
    • ⬆️Token Upgrades/Swaps
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 🔄REPOS
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮NFTs earned playing games
  • Record Keeping
  • Filing Your Self-Assessment
    • How to Register for Self-Assessment
    • How to Fill In the Tax Return
    • Submitting the Tax Return and Paying the Tax
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On this page
  • Tax treatment of financial trading income
  • Trading allowance and expenses
  • Trading Allowance
  • Losses from Financial Trading

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  1. CRYPTOCURRENCY TAX
  2. Income Tax

Financial trading income

PreviousIncome TaxNextMiscellaneous Income

Last updated 8 months ago

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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.

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.

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 provides lots of guidance about the kind of expenses that can be deducted, but it is recommended you seek the help of a .

Mining Electricity and Equipment

It is considered that under normal business expense principles the cost of additional electricity used in order to mine and capital allowances on the mining equipment used should be allowable expenses, but it is recommended a is consulted, as HMRC are silent on this in their guidance.

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).

However, if the individual also has a separate self-employed business (e.g. a plumber), care needs to be taken. The Trading Allowance cannot be claimed against the cryptoasset trading or miscellaneous income where self employed expenses are being deducted from any self employed income.

The Trading Allowance cannot create a loss

For example, if the income is £600, you cannot deduct the £1,000 Trading Allowance and claim a loss of £400. In this example, the Trading Allowance is restricted to £600, so that a loss is not created.

Losses from Financial Trading

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

A trading loss is much more useful than a loss under the miscellaneous income provisions, as it can be used in many different ways (such as against other income or carried forwards to set against future profits from the same trade).

However, HMRC have been known to challenge trading losses to deny trading loss relief. HMRC may either make a case that the taxpayer is not a trader, or that they are a trader, but they are not trading on a commercial basis with a view to making a profit.

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.

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

Investor or Trader?
How to Register for Self-Assessment
HMRC Business Income Manual
qualified tax professional
qualified tax professional
Court Cases
Akhtar Ali case