Cryptocurrency has gained significant popularity in the UK, with millions investing in digital assets. However, many may be unaware of the tax rules governing cryptocurrency transactions. HMRC classifies cryptocurrency as an asset rather than a currency, meaning activities such as selling, exchanging, gifting, or using crypto as payment are considered “disposals” and may incur tax liabilities.
As the January self-assessment deadline looms, self-employed individuals who have invested in cryptocurrency are being urged to clarify their tax obligations to avoid potential penalties, warn tax experts.
Tax specialists at GoSimpleTax emphasize the importance of understanding these rules to ensure accurate reporting and compliance with HMRC guidelines. With less than a month until the self-assessment deadline, addressing these obligations is crucial for avoiding fines and penalties.
Mike Parkes, technical director at GoSimpleTax, explains:
“Taxation on cryptocurrency can seem daunting, especially as the implications are different depending on your activity. Understanding whether your investments have incurred taxes is a crucial step.
“For most investors, Capital Gains Tax will be applied on any profits that exceed the £3,000 annual allowance. The rate of CGT depends on income; basic rate Income Taxpayers pay 10% and those on a higher or additional rate pay 20%.
“Anyone that is actively trading crypto or earning from it may be classed as a professional trader, requiring them to pay Income Tax on the earnings. This would be at a rate of 20%, 40%, or 45% depending on the income band.
“It’s important to keep detailed records of any crypto activities, including transactions, dates, values and expenses, and ensure that your accurate tax return is submitted ahead of the 31st January deadline. HMRC has enhanced tools to track crypto transactions. Failure to report gains or income can lead to penalties and interest, or even criminal charges for those deliberately evading tax. Now is the best time to take control of your finances to stay compliant and avoid unnecessary stress.”