Paying taxes on bitcoin isn't nearly as hard as it sounds
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This guide is not legal advice; for that, please consult a tax professional. When you buy bitcoin or cryptocurrency, nothing is expected of you at point of sale. However you will need a record of the price you bought it at to calculate taxes when you sell it in the future. The tax that you might be liable for in this instance is Capital Gains Tax CGT — a tax on the profit that is made when you sell something that has increased in value.
If tax is due it is only on the gain that you have made, not the entire amount you receive from the sale. This is why keeping records of the purchase value of your cryptocurrency is important. You can also include transaction costs such as transfer fees when calculating your gain. You can do this either by registering and reporting through Self Assessment, or by writing to them at:.
An extra tip for married individuals: You must report by 31 January after the tax year when you had the gains. The tax year runs from 6 April to 5 April the following year. So if your sale takes place on 18 Aprilthen you have to report by 31 January If your sale takes place on 4 Aprilyou also have to report by 31 January It is recommended only to use this option as a last resort, for example, if you are late in registering or filing your return. In your annual Self Assessment tax return.
If you are self-employed or run a business, you might already send a tax return. Again, the tax year runs from 6 April to 5 April. If your sale takes place on 18 Aprilor 4 Aprilthen you have to register by 5 October You must send your return by 31 January of the next tax year. Until you declare yourself as a trader to HMRC as belowyou are considered an investor and your annual gains are subject to Capital Gains Tax as above.
If you have made more than the CGT allowance then you will have to report and pay tax on your gains. Bear in mind that every single trade you make — even crypto to crypto — will most likely impact tax calculations. To calculate capital gains on a crypto to crypto trade, convert everything into GBP value at the time of the trade. So if you have made a significant number of trades, it is probably worthwhile getting a tax professional just to make sure you get things right.
Advice from HMRC was to consider the tax rules governing the sale of shares which can be found here and in further detail here as comparable to the sale of cryptocurrency. What is significant with respect to CGT is the concept of share matching, roughly translated to a complex example BTC scenario as follows:.
Say you have accumulated 1 BTC over 8 months, having bought 0. On 1 October you buy a further 0. Furthermore, after selling this, you decide to buy 0. So in our case, the 0. This portion will cost 0. In our case, the 0. So in this case, the average price will take into account all the BTC you have bought prior to the sale on 1 October The BTC you bought on 1 October has already been accounted for as a result of rule 1. So we have 0. The cost of this portion will be 0. As you can see, it is a bit of a headache.
Although there are services and apps which allow you to import CSV files of your trades from major exchanges and help you do some of these calculations, we can not currently recommend any particular service for UK-based investors. It really is best to get an accountant if your trading history is complex. For further guidance regarding your specific case you may also call HMRC at Friday afternoon has been suggested as a less busy and therefore better time to call. Usually your tax burden will be higher as a result.
You may do so online here. As a professional trader, you have to learn the tax rules of running a business — details regarding this can be found in the Business Income Manual. When one spends cryptocurrency in order to purchase a good or a service, this is still considered an asset disposal and has to be assessed as such. To calculate this, we return to our disposal rules, in this order: A pool where the cost of all the BTC Jim owns has been averaged.
Until HMRC provides explicit advice to the contrary, it is advisable to keep a spreadsheet of any purchases made with cryptocurrency, no matter how small, in case you exceed your personal capital gains allowance.
If this has been useful, please consider joining our mailing list for UK tax news, deadline reminders and updates to this guide: Skip to content This guide is not legal advice; for that, please consult a tax professional. Most exchanges will let you download CSV files of your trades. If you are feeling lazy, at least try to take a screenshot of recent transactions you have made.
You can create a separate email address for all your crypto records so that you can quickly email files to yourself for reference later. Here are some common positions you may find yourself in: You can do this either by registering and reporting through Self Assessment, or by writing to them at: You have two options for how you declare your gains to HMRC: In your annual Self Assessment tax return If you are self-employed or run a business, you might already send a tax return.
What is significant with respect to CGT is the concept of share matching, roughly translated to a complex example BTC scenario as follows: This is the order in which your BTC is priced and disposed of: So the total cost of the 0. What is important here is the price at which he purchased the BTC he is paying with.