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It is estimated that in the UK alone, over three million people currently own cryptocurrencies (crypto) and if you're one of them, it's important to be aware of the tax implications.
It was recently reported that HMRC is planning to contact crypto investors, asking them to check if they have paid the correct amount of tax.
This follows the publishing of HMRC's Cryptoassets Manual to help people to understand the tax implications from transactions involving crypto.
Many of the crypto exchanges are now open and transparent, but they don't all feature historic transactions, which is why it's important to keep a record yourself.
In a move similar to the Australian and US governments, which have already sent letters to their crypto investors, crypto exchange Coinbase has agreed to share data with HMRC relating to customers who received more than £5,000 equivalent of cryptocurrency.
The letters highlight people's tax obligations and it's essential that that if you receive a letter, you respond correctly. Failure to take action would be seen as a deliberate act of non-compliance and ultimately, could lead to higher penalties.
Although many investors in cryptocurrencies have made big gains, once you take profits – or even buy one cryptocurrency with another – you could be liable for capital gains tax (CGT).
Anybody who lives in the UK and holds crypto assets, will be taxed on any profits made on these assets, similar to those making gains on stocks and shares. As a general rule, individuals are liable for CGT on any profits made when they come to dispose of assets and if a purchase has been made through a company, then corporation tax must be paid
Your capital gain is simply the difference between what your cryptocurrency cost you and how much you sold it for.
As with other tax liability, you must ensure that you correctly report your tax position and pay your tax when it is due. It is believed that HMRC may be looking back to crypto records from 2016, so it is critical that any transaction details are fully up to date.
If you need further information, check out HMRC's detailed manual, which aims to help “people understand the tax implications that can arise from transactions involving cryptoassets”.
https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual
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Giltinan and Kennedy works in partnership with many businesses, charities and individuals across Horsham, West Sussex and beyond. Please feel free to get in contact with us for an informal chat about your business finances on 01403 337490 or learn more at https://www.giltinan-kennedy.co.uk/services/tax-advisers