Cryptocurrency is becoming more common in both personal and business finances. However, understanding how it’s taxed can be tricky. Whether you’re an individual investor or running a limited company, here’s a straightforward guide to help you navigate the tax implications.
For Individuals: Cryptocurrency and Tax
1. Capital Gains Tax (CGT):
When you sell, trade, or spend cryptocurrency, you might need to pay Capital Gains Tax (CGT) on the profits. This applies if you:
- Sell cryptocurrency for cash.
- Exchange one cryptocurrency for another.
- Use cryptocurrency to buy something.
- Give cryptocurrency as a gift (except to your spouse).
If your total gains from all investments, including cryptocurrency, are more than £3,000 in a year (for the 2024/25 tax year, 2023/24 is £6,000), you’ll pay CGT on the excess. The tax rate depends on your income level: 10% for basic-rate taxpayers and 20% for higher-rate taxpayers.
2. Income Tax:
If you’re paid in cryptocurrency (for example, from mining or staking), this is treated as income, and you’ll need to pay Income Tax and National Insurance on it.
3. Keep Good Records:
HMRC requires you to keep track of all your cryptocurrency transactions. This includes dates, the value in GBP at the time, and the purpose of each transaction. Good record-keeping makes it easier to report your taxes correctly.
For Limited Companies: Cryptocurrency in Business
1. Corporation Tax and Accounting for Cryptocurrency:
If your company holds cryptocurrency, it’s usually treated as an intangible asset (something valuable but not physical). Here’s how it works:
- Recording the Value: When you buy cryptocurrency, it’s recorded on your balance sheet at its cost.
- Changing Value: If the value of your cryptocurrency changes, you might update its value on your balance sheet. If it goes down, this loss is shown in your profit and loss account, which can reduce your tax bill. If it goes up later, the increase first reverses any previous losses, which then increases your profits and taxes.
2. Cryptocurrency Payments:
If your company accepts cryptocurrency as payment, you need to convert its value to GBP at the time of the transaction. This value counts as income and is taxed accordingly.
3. Paying Employees in Cryptocurrency:
When you pay employees in cryptocurrency, it’s treated like any other salary for tax purposes. You’ll need to deduct Income Tax and National Insurance, just like you would with a cash salary.
4. VAT on Cryptocurrency:
Even if you’re paid in cryptocurrency, VAT rules still apply. You’ll calculate VAT based on the GBP value of the goods or services you provide.
Key Points to Remember
- For individuals: Be aware of both Capital Gains Tax and Income Tax when dealing with cryptocurrency. Keep good records to make tax time easier.
- For limited companies: Cryptocurrency is treated as an intangible asset, and changes in its value can affect your tax bill. Understanding how to handle these changes is crucial.
Navigating cryptocurrency tax can be complex, especially for businesses. If you’re dealing with cryptocurrency, getting expert advice can help ensure you meet all your obligations. At Holden Associates, we’re here to help, whether you’re an individual investor or running a business.
