As is often the case in the world, especially in the technology sectors, things are changing so quickly, such that traditional assets like gold and silver are being replaced by digital equivalents, writes Inspire Director, Chris Downing.

I am of course talking about cryptocurrencies, or rather ‘cryptoassets’ (as we also now have Non Fungible Tokens – NFTs) as HMRC prefers to call them.

In the realm of crypto transactions, seeking the guidance of a skilled a crypto tax accountant uk is a wise decision for both individuals and businesses.

In the dynamic world of cryptoassets, regulatory frameworks are evolving, and tax implications can be intricate. A knowledgeable crypto tax accountant can provide tailored advice, ensuring that investors and businesses comply with HMRC guidelines and understand the tax implications associated with their crypto activities.

Whether it’s navigating capital gains tax on crypto trades or ensuring proper reporting for tax purposes, a crypto tax accountant can offer the expertise needed to navigate this evolving financial landscape with confidence and compliance.

What are cryptoassets?

The definition according to HMRC is: “Cryptoassets (also referred to as ‘tokens’ or ‘cryptocurrency’) are cryptographically secured digital representations of value or contractual rights that can be:

• transferred
• stored
• traded electronically”

Despite them largely being designed for utilisation as a form of digital currency, HMRC does not view them as ‘money’ or ‘currency’ and instead chooses to view them as assets.

Can I trade in cryptoassets?

Transacting in cryptocurrencies is generally referred to as ‘trading’ cryptocurrencies, but this doesn’t automatically make you a trader for tax purposes.

In order to fall into the ‘trading’ category, your income generated from the buying and selling of the cryptocurrencies will likely be your primary source of income. This in turn will mean that total profits will be treated as charged to Income Tax, rather than Capital Gains Tax (CGT).

The vast majority of individuals will fall into the ‘investing’ category and as such will be holding an asset with the intention of making a capital gain, thereby being subject to CGT on their gains.

What are the tax implications?

The amount you pay for cryptocurrency will be your base cost for tax purposes.

As you might imagine, the world of cryptocurrency is a volatile one, so it is not uncommon to see big profits or incur large losses in a year. The important concept is that for tax purposes, this only matters when you sell/dispose of the asset.

As with other capital assets, any such losses can be offset against gains in future years.

For UK tax purposes, cryptocurrency assets should be treated in the same way as stocks and shares by having their costs pooled together. This means that specific ordering rules must be applied to their purchase and sales.

Are fees tax deductible?

There are fees that are tax deductible when calculating the capital gain, such as:

• Fees paid for having the transaction included on the distributed ledger.
• Exchange fees related to the acquisition or disposal of cryptocurrencies.

Foreign exchange fees for converting to or from, for example, GBP to USD are not allowable for tax purposes. These may be incurred when initially depositing to, or extracting from, an exchange that only operates in USD.

What happens if the crypto I bought loses its value?

If you lose or misplace cryptocurrency, this does not trigger a capital loss for capital gains tax purposes.  If you hold cryptocurrencies which are now worthless, then a negligible value claim could be made – this will result in a capital loss which can be offset against future gains.

However, the cryptocurrencies must have been of value when bought and if during the time of ownership the cryptocurrency fell in value this must be proved – if HMRC ever queries in the future.

What can I buy with crypto?

Increasingly you can use crypto to buy practically any physical item – your employer could even choose to pay you in a cryptocurrency, rather than a regular currency…this is still liable to the usual payroll taxes though!

If you use cryptocurrency to buy / sell in other markets, this can trigger a chargeable event.  For example:

• Exchange one cryptocurrency for another (for example, trading Bitcoin for another cryptocurrency) – you are realising a capital gain for the Bitcoin that you are disposing of.
• If you make a purchase with cryptocurrency (such as buying a car with some Bitcoin) – again, you are realising a capital gain for the Bitcoin that you are disposing of.
• If you are being paid by an employer in a cryptocurrency – you are receiving an asset which has a value which will be the base cost for a future disposal.

Due to the complexities of the cryptocurrency capital gain calculations, I’d strongly recommend that you keep detailed records of the cryptocurrencies that you buy or sell.

The cryptocurrency sector is an extremely fast-paced one and HMRC is aware of them being more widely used, including as replacements for traditional currencies, so expect close scrutiny in the future.

There’s more advice on investing in crypto here – or our specialist tax team will be happy to help you if you have questions.