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Some returns derived from cryptoasset activity is treated as income, rather than capital gains. For example trading, mining and most staking/lending rewards are treated as income. However income is taxed in different ways, depending on the type of income and the activity undertaken to generate it.
Anyone who buys and sells or mines cryptoassets, needs to first consider if they are engaged in financial trading in cryptoassets, rather than simply assuming they are classed as an investor. Also, in some cases profits or losses arising from cryptoasset derivatives may be treated as financial trading income.
Individuals who are classified as financial trading in cryptoassets are required to pay income tax and national insurance on their profits, rather than capital gains tax on their capital gains and income tax on their miscellaneous income. Therefore, being classified as a trader rather than investor usually results in a higher tax bill.
Fortunately HMRC only expect individuals to be treated as a financial trader in exceptional circumstances.
Consider our detailed guidance below to check if you are an investor or a trader.
If you are a trader, look at our detailed guidance on what impact this has on your tax position.
Where there is no financial trading in cryptoassets, income derived from mining, and most staking and lending rewards will be treated as Miscellaneous Income (called Other Taxable Income on the tax return) and subject to income tax. See our further guidance on whether a staking/lending reward is considered as income or capital.
Allowable expenses and possibly the trading allowance can reduce the taxable income.
See our detailed guidance below on Miscellaneous Income and allowable expenses
If paid in cryptoassets the sterling equivalent at the date of receipt is taxable employment income, subject to income tax and national insurance contributions. In most cases the cryptoassets are Readily Convertible Assets (RCAs), which means the employer needs operate PAYE on the employment income.
HMRC state that employees need to receive an actual sterling payment for National Minimum Wage (NMW) purposes and are also clear that cryptoassets are not money. To avoid a NMW underpayment, employer’s should consider paying part of an employee’s salary in fiat sterling to cover NMW for their hours worked.
See our detailed guidance on employment income and NMW.