Do you Need to Pay Tax on Crypto?

In the dynamic landscape of digital finance, many of us are venturing into the world of cryptocurrencies. Bitcoin, Ethereum, and a multitude of altcoins offer potentially lucrative returns. As more individuals start crypto trading and investments, a pivotal question emerges: 'Do you need to pay tax on crypto?' This guide sheds light on the tax implications surrounding cryptocurrency in the UK.

Check out our straightforward guide below, written by a Chartered Accountant and designed for UK side hustlers, breaking down the essentials of cryptocurrency taxation.

table of contents

• Do I Need to Pay Tax on Crypto in the UK?
• Side Hustlers and Tax Implications
• Record Keeping
• When is Crypto Tax-Exempt for Side Hustlers?
• Trading Crypto Full-Time
• FAQs
• Final Thoughts
• Article Sources

According to HM Revenue & Customs (HMRC), cryptocurrencies aren't just digital play money. They're considered taxable assets. This means side hustlers dabbling in the crypto world must understand that gains from these digital transactions aren't immune to the taxman.

Capital Gains Tax (CGT)

If your side hustle involves trading cryptocurrencies, be aware that profiting from buying low and selling high falls under CGT. The tax only kicks in when you 'dispose' of your crypto, whether by selling, swapping, or spending it.

Income Tax

Side hustlers who accept cryptocurrencies as payment for a service, or those who mine cryptocurrencies, should note that this is taxable under Income Tax. The value of the crypto on the day you receive it determines the taxable amount.

Keeping transparent records for HMRC is crucial, especially for side hustlers, where crypto might be one of multiple income streams.

keep the following information

• The specific crypto type and amount you dispose of.
• Transaction dates.
• GBP value at the transaction time.
• Overall total of crypto transactions.
  

Key Takeaway

These records make tax time less daunting and more straightforward.

A few scenarios might be a relief for side hustlers:

Gifts

If you're generous enough to gift some crypto to a spouse or civil partner, you're clear from CGT. But gifting to others might have tax implications, so always double-check.

Airdrops

Some side hustlers benefit from airdrops, where new tokens are distributed, often for free or as a promotional boost. These might not be taxable right away. However, CGT could come into play when you decide to sell or use these tokens.

✅ Read our comprehensive guide on side hustles and your tax obligations.

The tax implications are more complex if you're trading crypto full-time in the UK. When crypto trading becomes a person's primary means of income, HMRC may treat the activities as a self-employed trade rather than just a casual investment.

Here are the general points to consider:

Income Tax over Capital Gains Tax

When you trade crypto full-time, the profits might be subjected to Income Tax rather than Capital Gains Tax. Income Tax rates in the UK are typically higher than Capital Gains Tax rates, especially if the profit pushes you into a higher tax bracket.

National Insurance Contributions

You might be liable to pay National Insurance contributions as a self-employed individual. You'd either pay Class 2 or Class 4 National Insurance, depending on the profit levels.

Expenses

On the upside, trading as a self-employed individual allows you to deduct certain expenses related to the trade. This can include costs related to buying and selling, like trading platform fees, and other overheads, such as home office expenses if you're working from home.

Registration

You'd need to register as self-employed with the HMRC and be responsible for submitting your Self Assessment tax return annually.

VAT (Value Added Tax)

Cryptocurrency itself is exempt from VAT in the UK. However, you should consider VAT implications if you're offering a service related to cryptocurrency (like crypto mining operations or running a crypto trading platform).

Changes in Regulation

The landscape of cryptocurrency and its taxation is still relatively new and can be subject to change. It's essential to stay updated with the latest HMRC guidelines and consider seeking advice from a tax professional who's well-versed in cryptocurrency.

It's always advisable for someone trading crypto full-time or considering it as a primary source of income to consult with a Chartered Accountant or tax specialist to ensure they're compliant with all tax obligations and making the most of available allowances and reliefs.

Cryptocurrency offers an exciting avenue for side hustlers to diversify their income.

However, with the potential for profits comes the responsibility of understanding your tax obligations. As the crypto landscape continues to evolve, side hustlers should stay informed and, if needed, seek advice from tax professionals to ensure they meet all HMRC requirements.

https://www.gov.uk/government/collections/cryptoassets