You may have heard about the boom in cryptocurrency. There are so many different coins now available that you can purchase, actually fairly easily. From Bitcoin and Ethereum to Dogecoin and Chainlink, there are lots that you might have heard of and loads you probably haven't. Whatever your thoughts on cryptocurrency, this post is all about how it is being looked at by HMRC. Cryptocurrency is a form of currency, so HMRC want to reinforce their position on it being declared.
Digital Currency
The HMRC cryptocurrency view is that it is to be treated the same as other assets. There has always been the understanding that all assets should be declared on the statement of assets. Cryptoassets are to be treated in the same way as gains on other investments. This means that the Tezos that you bought where they were cheap and have seen them increase in value, are subject to CGT. This is Capital Gains Tax. These are reported on a Self Assessment tax return.
Has HMRC's Standpoint Changed?
Not really. There was a point a few years ago where crypto was being viewed as a form of gambling. However HMRC seem clear that they want to concrete their view into place. This clarification of the rules makes everything open and honest for everyone. It has even published a HMRC cryptocurrency manual for staff members entitled the tax treatment of cryptoassets.
Hidden Wealth
There is likely a thought from HMRC that there are lots of people sitting on a lot of hidden wealth, by getting in early on cryptocurrency and not declaring their earnings. Dogecoin, for example, increased over 7000% in just a few months. Imagine if someone bought £500 at the low price and then sold at that 7000% increase. That's £35000! That takes you over the £12,300 personal allowance so there would be tax to pay.
A spokesperson from HMRC was quoted as saying: "The majority of individuals and businesses pay the tax that is due – however there remains a determined minority who refuse to play by the rules."
As more businesses across the planet seem to be adopting cryptocurrency as a form of payment, it is important for everyone to be clear about the tax implications of own these assets. If you need a bookkeeper to help with your accounts, please do get in touch.