Cryptocurrency Taxation in the UK – How to Report Crypto Income and Transactions?
Cryptocurrencies such as Bitcoin, Ethereum and Monero are specialised for making and receiving secure online payments. But making online payments isn’t the only thing cryptocurrencies can be used for. The cryptocurrencies themselves can be bought and sold in the same way people buy and sell commodities like gold or oil.
Trading cryptocurrencies may be quite rewarding, but you need to know what you’re doing. If you’re thinking about using Bitcoin brokers in the UK to help get you started, be sure to use a trusted broker, like those on the BanklessTimes Top 8 Bitcoin Brokers list.
Capital Gains Tax
Knowledgeable traders buy cryptocurrency shares when the price is low and sell them for a profit when the price is high. Because the prices of cryptocurrencies tend to be very volatile, there are huge profits to be made. But then, after they make a profit, traders have to pay tax on crypto.
In the UK, those who earn an income from mining or trading cryptocurrencies can pay between 20% and 40% of the value of their profits in taxes. The exact amount also depends on the price at which the cryptocurrency was sold.
In the first place, anybody who makes enough of a profit – on buying and selling cryptocurrencies or on anything else – has to pay Capital Gains Tax. Only profits that are more than £6,000 (for an individual person) are taxable. The minimum taxable amount for trusts is £3,000.
In the normal case, capital gain (or profit) is the selling price of the asset minus the purchase price. However, if the asset was free (for example, if it was received as a gift), the person who received that asset still has to pay capital gains tax on it based on the current market value of that asset.
Income Tax
Income tax is a tax paid on money earned. The main types of money earned are:
- A salary from an employer
- Profits made from selling goods or services
- Income from a rental property
- Income from a trust or investment
As in the case of capital gains tax, Income Tax only kicks in for income above the minimum amount. The standard Personal Allowance for non-taxable income is £12,570, but there are some exceptions.
When somebody receives a payment in cryptocurrency from an employer, this is income and is taxable as such. When somebody earns cryptocurrency from mining, that’s also income and is also subject to income tax.
The more you gain in crypto, the more income tax you have to pay. Those who earn less than £12,570 are completely exempt from paying income tax. Those who earn £12,571-£50,270 pay the Basic Rate of 20%. For those who earn £50,271-£150,000, there is the Higher Rate Income Band of 40%, and the highest possible Additional Rate Income Band of 45% is for income over £150,000.
How to Report Crypto Income and Transactions?
In the UK, the financial year begins on the 6th of April. Taxes for the 2023 financial year must be reported by the 31st of January 2024.
In most cases, income tax is deducted automatically by the employer before the salary is paid to the employee. However, people who are self-employed or who receive a high income from trading or investments have to fill in a Self-Assessment form.
To do this, go to https://www.gov.uk/browse/tax and set up an account. Log on using the details you used during registration, and follow the simple onscreen instructions.
There are crypto tax apps where all you have to do is sign up for a free account and input your crypto account details, and they will produce a summary of your gains, income, and expenses. Some apps provide the report for free but then require payment before you can download a copy of your final report, so be sure to read the fine print carefully.
Final Thoughts
Trading in cryptocurrencies can be very lucrative for expert traders. Because tax isn’t deducted automatically from profitable crypto transactions (in the way income tax is automatically deducted by employers), there is some possibility of cheating the system. But even if you can get away with it, you should never skip out on paying the taxes you owe. Pay your taxes: It’s the right thing to do!
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