Crypto Self-Assessment Tax Returns

Things to consider…

Cryptocurrency has quickly grown in popularity, and as more people invest in Bitcoin, Ethereum, and other digital currencies, it is important to understand the tax implications. In the UK, HMRC considers cryptocurrency to be property and not currency, meaning gains and losses from crypto transactions may be subject to capital gains tax (CGT). ) or income tax, depending on the nature of the transaction. If you hold cryptocurrencies and need to file a self-assessment tax return, there are several key things you should be aware of.

1. Understand taxable events

A taxable event in the context of cryptocurrency refers to a transaction that triggers a tax liability. In the UK, the following events are considered taxable events:

• Selling Crypto for Fiat Currency (e.g. GBP)
• Exchanging one cryptocurrency for another
• Using cryptocurrency to purchase goods or services
• Receiving cryptocurrency as a form of payment or reward (mining, staking, airdrops, etc.)

It is important to keep records of these transactions because they will determine your winnings or losses.

2. Capital Gains Tax (CGT)

Most individual cryptocurrency investors will have to pay Capital gains tax on profits made from the sale or exchange of their digital assets. The rate of CGT depends on your income level, with basic rate taxpayers benefiting from a 10% tax rate on any gains that fall into their remaining unused income tax basic rate bracket . Higher rate or additional rate taxpayers pay a flat rate CGT of 20% on their earnings. The annual exempt amount for the current tax year 2024/25 is £3,000, although the threshold was higher at £6,000 in the previous tax year (2023/24). If you make earnings below the annual exemption, they are not subject to CGT.

To calculate your CGT, you must subtract the cost of acquiring the cryptocurrency (including any transaction fees) from the overall proceeds of the sale. If you have made a profit, CGT may be due on the amount over your annual exemption. If you have suffered a loss, it is important to carry this loss forward to use against possible future gains.

3. Income tax

In some cases, income tax rather than CGT may apply, particularly if you are actively trading, mining, staking or receiving crypto via airdrops. Mining rewards, for example, are considered income and the market value of the crypto at the time it was received must be reported. Likewise, if you are considered a frequent trader, your activities may be treated as a business and any profits will be taxed as income.

Income tax rates vary depending on your income: 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.

4. Keep Accurate Records

HMRC requires you to keep full records of all your crypto transactions, even if you don’t owe tax on them. This includes:

• Transaction dates
• The value of the cryptocurrency in GBP at the time of each transaction
• The type of transaction (purchase, sale, exchange)
• Fees or costs associated with transactions
• The wallet addresses involved

These records will allow you to accurately calculate your tax liability and support your figures if HMRC asks for evidence. Cryptocurrency exchanges may not provide comprehensive reporting, so it is crucial to keep your own records.

5. Deductible expenses

Some expenses can be deducted from your taxable profits, reducing your CGT or income tax bill. Deductible expenses include transaction fees, withdrawal fees, and the cost of professional advice or software used to manage your crypto portfolio. However, personal expenses, such as electricity used for mining at home, may not be deductible unless you operate a mining business.

6. Crypto Losses

If you made a loss on your crypto investments, you can use these losses to reduce your tax bill by deducting them from any gains. To do this, you must declare the losses on your self-assessment return. Unused losses can be carried forward to future tax years, which could be useful if you anticipate gains in future years.

7. Staking, airdrops and forks

• Staking Rewards: If you earn cryptocurrency through staking, it is generally considered income and subject to income tax. The value of the cryptocurrency when you receive it must be reported as income.
• Airdrops: Receipt of cryptocurrencies via airdrops may also be subject to income tax. However, if you receive an airdrop without taking any action in return, it may not be taxable until you have the crypto.
• Hard forks: If a cryptocurrency undergoes a hard fork, resulting in the issuance of new coins, these new coins may be subject to capital gains tax upon disposal, like other crypto assets.

8. Deadlines and penalties

The UK tax year runs from April 6 to April 5 of the following year. If you have any crypto gains or income to declare, you must file your self-assessment tax return online by January 31 following the fiscal year. If you miss this deadline or underreport your crypto taxes, you could face penalties and interest charges.

9. Get professional help

Cryptocurrency taxation can be complex, particularly due to the increased volatility and unique aspects of digital assets. It’s easy to overlook taxable events or miscalculate gains. If you are unsure how to report your crypto transactions or calculate your tax liability, it may be helpful to seek help from a tax advisor familiar with crypto.

Final Thoughts

As HMRC continues to refine its stance on cryptocurrency, it is essential to remain compliant with tax regulations to avoid heavy fines and penalties. Whether you’re a casual crypto trader or a seasoned investor, understanding your tax obligations and keeping complete records will ensure you file accurate self-assessment returns. Be sure to review your transactions carefully and seek advice where necessary to ensure you stay on the right side of the law.

Next steps

By staying informed and organized, you can minimize your tax liability while complying with HMRC requirements. ETC Tax is here to help you with your crypto, ensuring you maximize tax efficiency.