HMRC is urging cryptocurrency users to check if they need to complete a self-assessment tax return for the 2022-2023 tax year.

Anyone with crypto assets, such as Bitcoin, will need to submit a tax return if:

  • Their total taxable gain is above the annual tax-free allowance
  • They receive crypto assets from employment, and income tax and National Insurance contributions (NICs) haven’t been paid through PAYE
  • Their total income is above the annual tax-free allowance they receive, including income from crypto-related activity

The deadline to complete a tax return and pay any tax owed is 31 January 2024.

What are crypto assets?

Crypto assets (also known as ‘tokens’ or ‘cryptocurrency’) are digital representations of value or contractual rights that can be:

  • Transferred
  • Stored
  • Traded electronically

There are different types of crypto assets that work in different ways. The main types include:

  • Exchange tokens
  • Utility tokens
  • Security tokens
  • Stablecoins

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “People sometimes forget that information about crypto-related income and gains need to be included in their tax return. Some people affected may not have had to do a tax return before, so it is important people check.”

Crypto assets and capital gains tax

You must report and pay capital gains tax (CGT) when you dispose of cryptocurrency and your gains from selling assets go over the tax-free allowance of £12,300 for the 2022-2023 tax year.

You might need to pay CGT when you:

  • Sell your tokens
  • Exchange your tokens for a different type of crypto asset
  • Use your tokens to pay for goods or services
  • Give away your tokens to another person (unless it’s a gift to your spouse or civil partner)
  • Donate tokens to charity

To check if you need to pay capital gains tax, you must work out your gain for each transaction you make. But the way you work out your gain is different if you sell tokens within 30 days of buying them.

Your gain is normally the difference between what you paid for an asset and what you sold it for. If the asset was free, you’ll need to use the market value when working out your gain.

You can deduct certain allowable costs. Plus, you can use capital losses to reduce your gain, but you’ll need to report them to HMRC first.

Inheritance tax

HMRC considers crypto assets to be property for the purposes of inheritance tax (IHT). The location of assets may need to be determined for non-UK domiciled taxpayers.

Receiving crypto assets

Any cryptocurrency you receive from employment or mining counts as income.

If you receive tokens as income, you must keep records and may need to pay income tax and National Insurance contributions.

If you receive tokens from mining and aren’t trading, the tokens will be treated as other taxable income. You must complete a self-assessment tax return unless you’ve received:

  • Crypto assets worth less than £1,000
  • Less than £2,500 from other untaxed income

If an employer pays you tokens, you should check if these are classed as readily convertible assets (assets that can be easily exchanged for cash).

What are the penalties for late tax returns and tax payments?

The fines for late tax returns are:

  • An initial £100 fixed penalty, which applies even if there’s no tax to pay, or if the tax due is paid on time.
  • After three months, extra daily fines of £10 per day, up to a maximum of £900.
  • After six months, a further penalty of 5% of the tax due or £300, whichever is greater.
  • After 12 months, another 5% or £300 charge, whichever is greater.

There are also additional penalties for paying late of 5% of the tax unpaid at 30 days, six months and 12 months. Interest will also be charged on any tax paid late.

But if you’re unable to pay your tax bill in full, you may be able to arrange a Time to Pay plan with HMRC.

Our advice for cryptocurrency users

Crypto may be a new and developing area but don’t assume your crypto activities won’t be taxable. And don’t ignore any large gains you make in the hope “no-one will ever know”.

If you get your tax affairs wrong and HMRC notices this later, you could end up paying interest and fines and facing a lengthy tax enquiry.

You should therefore get professional tax advice before deciding whether your crypto affairs are taxable or not.

Our guidance for accountants and tax advisers

It’s not always obvious when clients have made gains from crypto assets, so it’s important to ask the right questions when collecting tax return data. Otherwise, you could end up submitting an incomplete return.

A client might assume their receipt from a crypto investment is tax-free, but it might actually be subject to CGT.

Clients don’t know what they don’t know, so it’s sometimes up to us to ask the correct questions to make sure full disclosure is made where needed.

And if you’re unsure how to deal with crypto taxation, it might be wise to get an expert’s view.

Crypto tax advice

Our team of specialist tax advisers can support you with crypto tax planning and tax returns.

We can also help with HMRC tax enquiries and investigations, and we offer a tax expert witness service for court cases and tribunals.

Talk to us today on 07813 434195 or email: stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation