Do I have to pay taxes on my Bitcoin profits? A tax specialist answers

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David Britton is a tax partner at the accounting and business consulting firm BDO

With the value of some crypto-assets, notably Bitcoin, rising dramatically over the past few months, it’s inevitable that people will be curious about the tricks and pitfalls when investing.

There was a popular misconception that profits or winnings from crypto-asset transactions are considered gambling or lottery-type winnings and therefore are tax exempt.

This is not the case, and like any form of asset, buying and selling cryptoassets has various tax implications in the UK.

Anyone unsure of the correct UK tax treatment should seek advice on their particular situation.

In this article, David Britton, tax partner at accounting and business consulting firm BDO, answers some of the most frequently asked questions.

This is based on the assumption that the individuals and businesses mentioned below are UK based and does not cover UK business tax consequences.

Do I have to pay taxes on my bitcoin / crypto profits, and if so when and what tax?

In short, the answer is yes.

In December 2019, HM Revenue and Customs released its guidance document on cryptoassets for individuals, covering ‘exchange tokens’ (exchange tokens are intended for use as a method of payment and include crypto-assets like Bitcoin) and the HMRC makes it very clear that profits from buying and selling Bitcoin and any other crypto-asset is subject to tax.

Basically, the rules are as follows:

People

– Anyone who buys and sells Bitcoin on an individual basis is most likely to be subject to UK Capital Gains Tax (CGT) on gains made.

– For those who are considered to be trading in cryptocurrencies (i.e. buying and selling at a high frequency), income tax may be due on profits as trading income. HMRC’s view is that only in exceptional circumstances would it expect individuals to buy and sell cryptoassets with such frequency, level of organization and sophistication as he activity is akin to financial trading.

Jobs / Consultants

– For those who receive cryptoassets as a non-cash payment for a job, there are income tax and National Insurance Contribution (NIC) implications to consider, just like you do with cash payments.

For the vast majority of individuals who buy and sell Bitcoin or other crypto assets, they are more likely to fall under CGT than income tax. However, the facts of each specific case will determine the position.

The HMRC makes it very clear that profits from buying and selling Bitcoin and any other crypto-asset are subject to tax

The HMRC makes it very clear that profits from buying and selling Bitcoin and any other crypto-asset are subject to tax

Do I have to pay income tax and NIC if I get paid in Bitcoin?

If you receive cryptoassets from your employer as payment for services rendered in the UK it is clear that this counts as income and income tax and the NIC will apply based on the value of what you receive.

Crypto assets such as Bitcoin – where there is a tradable market – are considered “easily convertible assets”. This means that the primary tax liability falls on the employer in the same way as withholding taxes on cash wages.

This can present administrative difficulties as the value of Bitcoin can fluctuate and part of the Bitcoin will have to be sold to pay a cash equivalent to HMRC. We’ve seen some tech companies pay their employees this way, but it’s rarely more efficient to do so than to pay in cash.

If you are an independent consultant (i.e. not an employee) and you receive Bitcoin for consultancy work, the responsibility for reporting and paying income tax and the NIC rests with the individual via its annual tax return.

Do I have to report my Bitcoin sales on a UK tax return?

It will depend on your personal situation.

Generally speaking, if you are a UK tax resident and earn more than your annual CGT exemption (£ 12,300 for 2020/21), you will need to declare and pay CGT via an annual tax return. UK.

If your earnings fall under your annual CGT exemption, you may still need to report the earnings when the proceeds exceed four times the annual exemption (i.e. £ 49,200 for 2020/21) or when you have to other capital gains or losses.

Generally speaking, if you earn more than your annual CGT exemption (£ 12,300 for 2020/21), you will need to declare and pay CGT through an annual UK tax return.

Generally speaking, if you earn more than your annual CGT exemption (£ 12,300 for 2020/21), you will need to declare and pay CGT through an annual UK tax return.

HMRC now receives information directly from UK crypto exchanges / platforms. Therefore, non-disclosure of transactions will most likely lead to an investigation by HMRC and could lead to HMRC imposing penalties and costing you more.

For example, last year Coinbase, the digital currency exchange, confirmed that it shared with HMRC the details of UK resident users who used its platform with 5,000 Crypto transactions. £ or more in the 2019/20 fiscal year.

HMRC has allocated resources to ensure that tax due on cryptocurrency transactions is declared in collaboration with its international partners.

The J5 (Joint Chiefs of Global Tax Enforcement comprising Australia, Canada, the Netherlands, the United States and the United Kingdom) is also already sharing information on the use of crypto-assets and predicts that more This information will be shared globally in the coming years in a coordinated effort to tackle tax crimes.

As a result, we expect to see a growing number of HMRC inquiries focused on those who buy and sell cryptoassets.

Just last month, HMRC began a consultation with industry and stakeholders on the regulatory approach to cryptoassets. The aim of the consultation is to create a more agile regulatory framework that supports innovation and competition while reducing risks to consumers.

If you are unsure whether your cryptocurrency profits and gains should be included on your tax return, or if you have any historical unreported profits or gains resulting from crypto transactions, you should consider seeking advice as it is. is a rapidly developing tax area.

What should I do if I haven’t correctly reported Bitcoin sales?

It is always better to make a voluntary disclosure to HMRC to correct any errors or omissions rather than waiting for HMRC to make contact. This will likely result in lower financial penalties (if any) and may also reduce how far the disclosure covers.

While the appropriate route of disclosure will depend on the specific circumstances, HMRC has online disclosure facilities which are likely to be appropriate in most cases where correction is required.

David Britton is a tax partner at the accounting and business consulting firm BDO.

Some links in this article may be affiliate links. If you click on it, we can earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.


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