The world of cryptocurrency is a huge one. There are many different levels of trading and investing in cryptocurrency, and it can become confusing when you are wanting to work out what bracket you and your business are classed under.
Just like any other income you have, it is important you are logging it correctly to HMRC so that they can calculate your tax responsibilities.
How does HMRC view cryptocurrency?
As cryptocurrency is a fairly new concept, HMRC are constantly evaluating and evolving their guidance and practises around it. There are a few particular pieces of guidance that they are currently offering:
HMRC don’t view cryptocurrency as money but as an asset
This means that selling or disposing of your cryptocurrency will result in capital gains, even if you’re using that cryptocurrency to purchase something. The same tax rules that apply to the buying and selling of shares, also apply to the buying and selling of cryptocurrencies.
HMRC distinguish between three types of cryptoassets
- Exchange tokens – These have the ability to be exchanged for value or held as investments.
- Utility tokens – These tokens can only be used within certain frameworks or organisations (for example, fan clubs).
- Security tokens – These represent real life assets or debts.
Tax depends on whether you’re a trader or investor
The tax that you’ll have to pay on a crytocurrency transaction will depend on two things: whether you’re an investor or a trader; and whether the transaction is considered a capital gain or assessable income.
HMRC states: “Only in exceptional circumstances would HMRC expect individuals to buy and sell exchange tokens with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself”.
Are you a cryptocurrency investor or a trader?
The first thing you need to do when it comes to working out your tax liabilities regarding cryptocurrency is to work out whether you are classed as an investor or a trader.
Investors – You are classed as a cryptocurrency investor if you are someone who is primarily buying and selling as a personal investment tool. Most people who are involved with cryptocurrency will be considered investors. As a general rule, your transactions will be subject to Capital Gains Tax.
Traders – You are classed as a trader if you are someone whose primary source of income is the buying and selling of cryptocurrency. Instead of assessing each individual transaction as capital gains, traders treat their profits as personal income instead.
How can we help you?
Our team has done extensive research into the tax and accounting implications of trading and investing in cryptocurrency. We understand that everyone’s circumstances are different, so we can go through all of the rules and regulations you need to follow in order to be fully tax compliant with the HMRC.
Get in touch with the Turas team today to find out more.