Paying Tax On Cryptocurrency

Paying Tax On Cryptocurrency

The United Kingdom’s tax authority, Her Majesty’s Revenue and Customs (HMRC), is cracking down on cryptocurrency investors who have failed to properly report crypto-related income and capital gains for tax purposes. In an effort to spur voluntary disclosures from crypto investors, HMRC recently launched an online reporting tool that allows investors to disclose previously unpaid taxes on cryptocurrencies like Bitcoin.

According to HMRC estimates, as many as 58% of UK crypto investors are unaware that they may owe taxes on crypto gains. This lack of understanding stems largely from the youthfulness of the typical crypto investor demographic. HMRC intends to ramp up enforcement efforts to collect the unpaid taxes from non-compliant investors.

Some of the specific crypto tax reporting requirements highlighted by HMRC include:

  • Capital gains tax may apply if you sold cryptocurrency at a profit. Everyone has a £6000 annual capital gains allowance before the tax kicks in at 10% for basic rate taxpayers and 20% for higher rate taxpayers.
  • Exchanging one cryptocurrency for another or using crypto to purchase goods/services counts as a taxable disposal potentially subject to capital gains tax.
  • Receiving cryptocurrency as employment income subjects it to national insurance contributions and income tax.
  • Starting in tax year 2024-2025, self-assessment returns will include a dedicated box for reporting crypto transactions.

To spur voluntary disclosures before enforcement actions expand, HMRC launched an online reporting tool for taxpayers to disclose previously unpaid crypto taxes. Taxpayers must calculate interest and penalties due on late tax payments and include this amount along with unpaid tax in their disclosure report.

As HMRC expands data sharing and reporting requirements for cryptocurrency exchanges starting in 2027, non-compliant UK crypto investors are running out of time to voluntarily disclose unpaid taxes before HMRC catches up with them through expanded enforcement initiatives.

For more information contact Ballards LLP at 01905 794 504

Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.

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