Cryptocurrency – Do you know the tax rules?

Cryptocurrency – Do you know the tax rules?

Investment and transactions in cryptocurrency have become increasingly popular in recent years. However, potential investors need to be aware of the very real tax implications that this virtual currency can carry.

Cryptocurrency, such as Bitcoin, has experienced extreme volatility in the market resulting often in huge windfalls for both individuals and companies.  This could mean that Income Tax (IT), Capital Gains Tax (CGT) or Corporation Tax (CT) may be due.  The tax treatment is briefly as follows:

IT – If you are paid for goods/services in cryptocurrency as part of your business, the income (calculated on its value when the income was received) will need to be included in your trading results.  Similarly, if you ‘mine’ cryptocurrency as a trade, HM Revenue & Customs (HMRC) have taken the view that any profits are subject to the same taxation as salary.

CGT – Virtual possessions are taxed in the same way for individuals as tangible possessions.  CGT may be due if the total gains for the year exceed the annual amount (£11,700 for 2018/19).  The gains will only crystallise when the cryptocurrency is sole or converted into another currency.  Any taxable gain will be subject to CGT at 10% or 20% depending on the level of income received by the taxpayer in the tax year.

CT – Any gains realised by a company on cryptocurrency will also be taxed at corporation tax rates.

For further advice or information on the taxation of cryptocurrency, please contact Emily  Williams at emily.williams@kilsbywilliams.com.