Cryptocurrency Tax in the UK

Do You Have to Pay Tax on Cryptocurrency in the UK?

Cryptocurrency is becoming more and more popular, but many people are unsure about how to tax it. In this article, we will answer the question: is there a crypto tax in the UK? We will also cover other related topics, such as why there is a crypto tax and how to pay tax on cryptocurrency in the UK. So, if you're wondering about your tax obligations when it comes to digital currency, keep reading for all the information you need!

Is there a crypto tax? (UK)

In the UK, there is no specific Cryptocurrency tax or Bitcoin tax. Instead, your crypto will either be subject to Capital Gains Tax or Income Tax. In the UK, cryptocurrency is treated as property. This means that any gains or losses you make from buying, selling, or exchanging digital currency are subject to Capital Gains Tax (CGT). So, if you're wondering whether you have to pay tax on cryptocurrency in the UK, the answer is yes - you may be liable for CGT on any profits you make from trading cryptocurrency.

Why is there a crypto tax (UK)?

The reason for this is that the UK government views cryptocurrency as an investment, rather than a currency. This means that it is subject to the same rules and regulations as other investments, such as shares or property.

The amount of tax you will pay on your cryptocurrency profits will depend on your individual circumstances. However, if you are a basic rate taxpayer, you will pay 10% CGT on your profits. Higher and additional rates taxpayers will pay 20% CGT.

Do I have to be a crypto trader to be taxed?

No, you don't have to be a professional trader to be liable for CGT on your cryptocurrency profits. Even if you only buy and sell digital currency as a hobby, you may still be required to pay tax on any gains you make.

The key thing to remember is that CGT only applies to profits - if you make a loss on your cryptocurrency investments, you will not be required to pay tax.

How to pay tax on cryptocurrency UK

If you need to pay tax on cryptocurrency in the UK, you will need to self-assess your Capital Gains Tax liability. This means filling in a self-assessment tax return and including your cryptocurrency profits (or losses) on this return.

If you're not sure how to do this, you may want to seek professional help from an accountant or tax advisor. They will be able to help you calculate your CGT liability and file your self-assessment tax return correctly.

You'll need to submit a tax return to the HMRC if:

●?????You are a self-employed cryptocurrency trader.

●?????You have made gains from selling cryptocurrency that is not classed as your personal asset (for example, if you have bought and sold bitcoin as part of your business).

What if I buy and trade cryptocurrency as part of my business?

If you buy and sell cryptocurrency as part of your business, any profits you make will be subject to Corporation Tax. This is the same tax that applies to other businesses in the UK.

If you're not sure whether you need to pay Corporation Tax on your cryptocurrency profits, you should speak to an accountant or tax advisor. They will be able to advise you on your specific circumstances.

Can HMRC track my Crypto?

The short answer is yes. HMRC, the UK's tax authority, has been tracking cryptocurrency since 2015. In fact, they were one of the first tax authorities to do so.

HMRC tracks crypto by monitoring key exchanges and wallets Centralised exchanges, such as Binance and Kucoin, utilise a system known as KYC - Know Your Customer, which needs an Identity check to determine your identity so that your trades may be verified to you, similar to stock market trading.

Your information will be handed along to HMRC as a result of this KYC Identity check, alerting them to any losses or gains you may have earned in the previous year. They also work with banks and other financial institutions to track crypto transactions.

So if you're thinking about hiding your crypto from the taxman, think again. HMRC is way ahead of you.

Can HMRC track decentralised Exchange

Decentralised exchanges?such as?Pancake Swap?or?Uniswap?do not require any KYC, and are completely decentralized, often referred to as?DeFi, or Decentralised Finance as there is no centralised body. Users engaging with DeFi through private wallets, where only they have access to the keys, are much harder to track down for HMRC and are required to personally make sure they are filing their taxes properly.

Note:?HMRC can track decentralised exchanges in a number of ways. For example, if you make a substantial deposit of cash into your bank account or a big deposit of cryptocurrency, whether bitcoin, altcoins, or stablecoins, into an exchange wallet that you own, HMRC will investigate.

Bottom Line:

Paying tax on cryptocurrency in the UK can seem complicated, but it is important to make sure you are compliant with the law. If you're not sure about your tax obligations, we recommend seeking professional advice. An accountant or tax advisor will be able to help you understand your responsibilities and ensure you are paying the right amount of tax.

eCloud Experts are the best in the business when it comes to crypto tax returns and accounting. So, if you need help with your crypto taxes, don't hesitate to get in touch! We will be happy to assist you.