Crypto currency and tax

Crypto currency has been around for a while now and it's not uncommon for business transactions to be carried out in bitcoin (the best known of the crypto currencies). Elon Musk now accepts commercial payments in crypto currency - and other companies are following suit.

The challenge comes when tax needs to be applied. There is no legislation around how crypto currency is treated, but HMRC have issued a manual confirming acceptable treatment of crypto currencies. It's not yet been categorised as a currency in the same way as Euros or dollars. As far as HMRC are concerned, crypto currencies are a capital asset similar to the purchase of shares in a listed company. What tax is due is then depends on the activity you are undertaking.

Investment or trade?

Many people buy bitcoin or other crypto currency as an investment, based on the belief that the value will increase over time. That's like buying shares or stocks in an organisation and holding them with the expectation of their value increasing - or buying property or artwork with the same intent. 

Any subsequent sales of bitcoin bought in this fashion will equate to selling an asset - and attract Capital Gains Tax (CGT). The same rules applied to sales of other assets will be applied by HMRC.

However, that isn't the only way that HMRC can extract their pound of flesh. If you buy and sell crypto currency to make a profit on a regular basis, you can be considered to be trading. That means that the profits you make are income and, therefore, subject to income tax. In the case of an organisation trading in crypto currency - HMRC will expect the profits to be included in the Corporation Tax return.

Protecting your assets

You can't avoid paying tax and, unlike buying other assets like gold or shares, there isn't a tangible item to place in a safe and protected place.

Each bitcoin is a few lines of code and if your computer is hacked it's gone. There have been well-publicised cases of people losing their computer password and being unable to access the bitcoin they've bought, too.

If you or your company owns any crypto currency:

  1. Ensure it's kept as safe as possible
  2. Understand whether your handling of it constitutes investment or trading
  3. Include it in any tax declarations.

If you do have crypto currency and you aren't sure what to do about it, get expert advice (you can talk to us on 01992 554444).