In the United Kingdom, tax season starts on April 6 and runs until April 5 of the following year. If you’re submitting a self-assessment, you might have to pay some of your bills by July 31. While the dates might be easy to remember, U.K. tax advice around crypto can quickly become complicated.
Like many tax jurisdictions, Her Majesty’s Revenue Service (HMRC) did not create new laws to tax crypto assets. Instead, HRMC has, since 2018, issued guidance on how to wrap the existing tax code around crypto. Its guidance outlines how cryptocurrencies are not considered currency or money, but property.
The advice has been updated several times since then, and in March 2021 the HMRC compiled its advice into a manual. In 2022, the tax department shed light on how to report taxes on decentralized finance (DeFi) staking and lending.
This piece is part of CoinDesk’s Tax Week.
Using HMRC’s advice, it’s your unenviable job – or more likely, your accountant’s – to determine the tax liabilities created by events like mining, trading and complicated DeFi protocols.
For individuals (as opposed to businesses), the U.K. tax guidance for crypto is split between capital gains and income. Whenever you make money from selling crypto, it’s likely that HMRC will charge you for capital gains taxes – just like how you pay taxes on profits from stock trading. If you’ve earned crypto from activities like working for a decentralized autonomous organization (DAO) or from mining, you’ll pay income tax and national insurance on your profits. If your total income or capital gains for the year are below certain thresholds, you might not have to pay any tax. And you don’t have to pay any taxes for simply holding crypto.
Read More: Avoid Crypto Tax Headaches: What You Need to Know if You Bought or Sold Crypto in 2021
If you will report the money you made from crypto as income, it’ll count towards your income tax; bands range between 0% and 45%. For England, Wales and Northern Ireland, see the table below. Scotland adds another two bands: a 19% starter rate and a 21% intermediate rate.
You’ll also have to contribute to national insurance – the U.K.’s social security pot. National insurance changes on whether you’re employed or self-employed, and how much you earn. The taxes range from 2% to 12%.
For capital gains, the first GBP 12,570 of profit is tax free for everyone. If you pay a higher rate of income tax, you’ll pay a flat fee of 20% on gains thereafter. If you pay a basic-rate income tax, capital gains taxes depend on how much you’ve earned. To work out how much you need to pay, take your total taxable gains and deduct your tax-free allowance of GBP 12,300. You’ll pay 10% on gains within the basic income tax bracket, and 20% tax on figures greater than that.
To offset the impact of rising inflation, the IRS has revised a number of tax provisions to let people keep more of their money in their wallets for the 2022 tax year.
Tax guidance lags innovation. So does tax software. Meanwhile, misconceptions abound. If not careful, investors can end up owing more tax than expected and having to unload crypto to pay the bill
Investors in MicroStrategy, Tesla, Block and Coinbase need to consider how wild price swings will affect results, not only directly but indirectly due to complex tax accounting rules.
Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt. He is also a graduate of Oxford University's Internet Institute.
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