Do I need to pay tax on Cryptoassets?
Updated: Aug 3
What are cryptoassets? Crypto assets are a fairly new asset class and remain mysterious to many people. However, they are becoming ever more common. Crypto’s continue to grow in popularity with investors appearing to overlook pricing volatility in the hope of gaining a profit if valuations soar. Crypto assets are not just an asset class for investments either, increasingly they can be used as a form of currency too. What qualifies as cryptocurrency and tokens? Crypto assets include cryptocurrency and tokens. HMRC defines crypto assets as cryptographically secured digital representations of value or contractual rights that can be transferred, stored, traded electronically and use some form of distributed ledger technology.
HMRC recognises four main types of crypto assets: exchange tokens (which include cryptocurrency, like Bitcoin), utility tokens, security tokens stablecoins.
HMRC are interested when? Trades and gains are made. HMRC can access data from crypto exchanges. It is important to ensure that all activity is fully compliant and reported where appropriate. In most cases, individuals hold cryptoassets as a personal investment, usually for capital appreciation or to make particular purchases, at this instant, they will be liable to pay Capital Gains Tax when they dispose of their cryptoassets.
Tax for Individuals Individuals will be liable to pay Income Tax and National Insurance contributions on cryptoassets which they receive from:
Their employer as a form of non-cash payment
Mining, transaction confirmation or airdrops
There may be cases where the individual is running a business which is carrying on a financial trade in cryptoassets and they will therefore have taxable trading profits. This is likely to be unusual, but in such cases, Income Tax rules would take priority over the Capital Gains Tax rules.
Record Keeping in relation to cryptoassets and taxes Cryptoassets exchanges may only keep records of transactions for a short period, or the exchange may no longer be in existence when an individual completes a tax return. The responsibility is on the individual to keep their own records for each cryptoassets transaction.
Records of cryptoassets can be:
Paper wallets containing the individual’s public and private keys
Electronic wallets on devices
Other records of their transactions and balances such as downloads of their wallet activity from a cryptoassets exchange
Hardware wallets look like a USB, containing the individual’s public and private keys.
Cryptoassets are digital assets and all records in a wallet should show balances and transactions, either in full or via reference to a public blockchain.
The individual’s access to fiat currency could come from:
The point of deposits into a bank account; and
Use of a cryptoassets Automated Teller Machine (ATM)
These are records which should also be kept and produced for an enquiry. They form part of the audit trail from acquisition to disposal and therefore evidence of any gains made. Cryptoassets transactions usually occur on a public blockchain. This allows it to be viewed digitally and checked using records obtained from a wallet. A link to an open source blockchain transaction and acknowledgement of the individual owning the public key involved in the transaction is a record as is a download from their wallet provider or exchange.
Cryptoassets are obtained, administered, exchanged, used and linked to fiat currency electronically or digitally. HMRC can request electronic records with full details of transactions. They can also request any supporting valuation records for the acquisition and disposal tax points.
Cryptoassets exchanges may only keep records of transactions for a short period, or as long as they exist when an individual completes a tax return.
The responsibility is on the individual to keep their own records for each cryptoassets transaction, and these must include:
The type of cryptoassets
Date of the transaction
If they buy or sell
Number of units involved
Value of the transaction in pound sterling (as at the date of the transaction)
The cumulative total of the investment units held
Bank statements and wallet addresses, in case these are needed for an enquiry or review.