CRYPTOCURRENCY TAX
TRANSACTION TYPES
How to Fill In the Tax Return
Capital gains
Capital gains needs reporting to HMRC if the net capital gains for the tax year (total capital gains less total capital losses in the same tax year) exceed the CGT annual exemption (£12,300 in 2020/21 and 2021/22).
The capital gains still need reporting if there are capital losses carried forwards from earlier years, which reduce the capital gains below the annual exemption.
An additional requirement for individuals who are already required to file a Tax Return for another reason (ie rental property, self-employment), is they have declare the capital gains to HMRC on their Tax Return where the total disposal proceeds exceed four times the annual exempt amount (ie £49,200 in 2020/21 and 2021/22); regardless of whether or not the net capital gains for the tax year are less than the annual exemption.
Capital gains can be reported to HMRC on the Tax Return or using the ‘Real time capital gains tax service’. The idea of the ‘Real time capital gains tax service’ is that you don’t wait until the end of the tax year to declare the gain and pay the tax. However, it is unlikely to be appropriate where there are many disposals in a tax year.
The Recap CGT pdf report provides a summary of all the relevant information to be included on your annual Tax Return. The intention is that you pass our report to your accountant and they will be able to complete the Tax Return and advise on your tax position, based on your specific circumstances.
Capital Losses
All capital losses should be reported, as it is the only way they can be ‘claimed’ to use against future gains.
Losses can be reported to HMRC:
- on the Tax Return (if one is already required)
- by letter
The time limit for claiming capital losses is within 4 years of the end of the tax year in which the capital loss was realised.
Trading income
Financial trading in cryptoassets is reported on the Self Employment pages of the Tax Return. Consideration of whether or not a taxpayer is engaging in financial trading is a very complex area that we have detailed here:
There is a trading allowance of £1,000
Trading and Miscellaneous Income less than the Trading Allowance
If the total trading and miscellaneous income is less than the Trading Allowance of £1,000, there is no need to report this income 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.
The Recap Income pdf report provides details of all cryptoasset income to be included on your annual Tax Return. The intention is that you pass our report to your accountant and they will be able to complete the Tax Return and advise on your tax position, based on your specific circumstances.
Trading Income higher than the Trading Allowance
If the trading income is more than the £1,000 Trading Allowance, the individual can choose to simply deduct the £1,000 from their total trading income (with no deduction for actual expenses incurred), or calculate the trading profit 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 mining income if self employed expenses are being deducted from any self employed income.
If there is a loss, it is worthwhile considering if it is better to elect to waive the Trading Allowance exemption and report the loss on the Tax Return.
Miscellaneous income
Assuming income from mining, staking etc is not trading income, this is reported on the Tax Return (along with taxable Airdrops) as miscellaneous income, subject to income tax.
Miscellaneous Income less than the Trading Allowance
If the total trading and miscellaneous income is less than the Trading Allowance of £1,000, there is no need to report this income 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.
The Recap Income pdf report provides details of all cryptoasset income to be included on your annual Tax Return. The intention is that you pass our report to your accountant and they will be able to complete the Tax Return and advise on your tax position, based on your specific circumstances.
If the miscellaneous income is more than the £1,000 Trading Allowance, the individual can choose to simply deduct the £1,000 from their total miscellaneous income (with no deduction for actual expenses incurred), or calculate the net miscellaneous income under the normal rules (income less allowance expenses).
If the individual also has a separate self employed business (e.g. a plumber), care needs to be taken when claiming the £1,000 Trading Allowance. The Trading Allowance cannot be claimed against the cryptoasset miscellaneous income if self employed expenses are being deducted from any self employed income.
If there is a loss, it is worthwhile considering if it is better to elect to waive the Trading Allowance exemption and report the loss on the Tax Return.
Employment income
Employment income received in cryptoassets is reported on the employment pages of the Tax Return if the cryptoassets received are not considered to be readily convertible assets (however it is not expected that many cryptoassets fall within this category). This is the position, even if the employment income is received from a third party rather than your employer.
If the cryptoassets received are considered to be readily convertible assets (which is expected to be most likely), the employment income should have been subjected to income tax and national insurance at the time of receipt via PAYE. Where this is the case, it only needs to be reported on the Tax Return if there are other reasons for a Tax Return to be required (e.g. capital gains to report, rental income, self-employment) or if any tax and national insurance met by the employer was not repaid to them.
For more details on employment income and the definition of a readily convertible assets follow this link.