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Cryptocurrencies have rapidly evolved from niche assets to mainstream investments, capturing the attention of investors and regulators alike. As the popularity of crypto grows, so does the need for a clear understanding of the tax implications associated with these digital assets.
The 2022/23 tax return is the first one that HMRC has properly recognised income from Crypto. Just goes to show that Crypto is now mainstream and something that HMRC are starting to get very interested in.
Are you looking to get involved in the ‘world of crypto’ but don’t know where to start with how to stay tax-efficient, and what you actually owe taxes on.
In this comprehensive guide, we’ll explore the intricacies of cryptocurrency taxation in the UK, shedding light on key guidelines and considerations.
HMRC does not view cryptocurrencies as ‘currency’ or ‘money’. Instead, they are treated as property, making them subject to Capital Gains Tax (CGT) upon disposal, which includes selling, trading, or gifting them.
Taxable events also include using crypto to pay for goods or services, exchanging them for a different type of crypto asset, and giving them away, with some exemptions like gifts to spouses or civil partners.
Key points to consider:
In previous years, you may have had a defence that there was no box on your tax return for explicit cryptocurrency gains or losses, and you have muddled up your CGT return. Now there is a box on your tax return for crypto gains or losses. This means that in slightly boring accountancy speak, you need to have ‘supporting schedules’ for your crypto gains or losses.
Taking off my accounting/tax hat for a moment, this means you have a document which shows every trade (see definitions below for what this could be) of cryptocurrency that you have done.
My sources tell me that the HMRC will be asking the organisations behind the major cryptocurrencies for reports on who has traded what and when, just as they are doing this for Amazon, Etsy and the big online buying and selling platforms. How will this happen? Who knows? But the revenue has mighty computers that love analysing data and comparing it against the returns that have been submitted.
The bottom line is cryptocurrencies are a minefield for tax purposes. (Do you like my pun?) You may only be dabbling in them, but I can’t state this more strongly: you will need the help of an accountant. That’s to file your tax return both for you personally and any investment or trading business that you have. Not just any accountant. Given my 30 years of wrangling with HMRC, I can see that they are gearing up to start poking around in crypto investors affairs. A ‘cloud accountant’ or a ‘digital accountant’ or an accountant specialising in small business owners isn’t good enough. You need an accountant who truly understands tax and crypto. (Hint: We do) If your accountant charges you under £500 for your tax return, if you have dealings with Crypto, then run away very quickly…
Crypto investors engage in various activities, including trading, mining, and staking. Each activity comes with its own set of tax implications.
This is where you buy crypto assets using ‘normal’ currency and sell them on for a profit. These profits from buying and selling cryptocurrencies could be subject to CGT if they exceed the tax-free allowance. In exceptional circumstances, where trading is frequent and sophisticated, it might be treated as income and subject to Income Tax. Once again, ask your accountant to deem whether your trading can be treated as income. The likelihood is it wouldn’t be.
For certain types of crypto assets, such as Bitcoin, you can earn rewards by ‘mining’. Income from mining is treated as trading income or miscellaneous income, depending on the nature of the activity. In either case, the income is taxable if it exceeds the trading allowance of £1,000 in a tax year.
Staking is a form of a reward that you can earn from your crypto assets and is typically taxable as trading or miscellaneous income. Individuals may treat it as savings income and claim a personal savings allowance, but CGT rules may apply if disposed of later.
This is nothing to do with Apple products! This could be a ‘free’ crypto asset received from someone else in return for a service or simply because you own another type of crypto asset. The tax treatment of airdrops depends heavily on the reason for receiving the crypto asset.
For all of the above, Income Tax and National Insurance contributions apply to crypto received as income. The tax rate depends on total income, with specific bands determining the applicable percentage.
Calculating CGT involves determining the gain for each transaction, typically the difference between the purchase price and the sale price. Allowable costs, such as transaction fees, advertising, contract preparation, and valuation fees, can be deducted. Crypto assets must be grouped into pools by type for cost calculation, with specific rules applying to tokens bought and sold within 30 days.
Reporting and paying CGT can be done through a Self Assessment tax return. Accurate record-keeping, including transaction types, dates, quantities, values in pound sterling, and bank statements, is essential. This is not me being a boring accountant, this is me saving you time, money and angst in the future.
Beyond investment, cryptocurrencies are increasingly used as a form of income. If used for forms of income, such as payments for employment duties, these could be subject to Income Tax and National Insurance contributions.
For CGT from crypto over the £12,300 tax-free allowance, you’ll pay either 10% or 20% tax, depending on which band you fall under. The amount depends on transactions made, the tax that applies and the Income Tax band that you fall into.
The bill can be reduced by unused capital losses brought forward. This means it is SO important for your tax returns to be done promptly and any capital losses clearly identified. These capital losses could be more than just Crypto, such as selling shares at a loss, or making a loss on a property deal. You get the picture! I’m going to get boring again, but record-keeping here is vital again…
The crypto landscape is ever-changing, and staying ahead of emerging trends is vital for taxpayers. We’ll provide updates on regulatory shifts but staying informed about these changes is essential for anticipating their impact on cryptocurrency taxation.
To ensure that you’re staying compliant, involve a professional in your tax planning.
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
I’ve been around for a few years. In my opinion there is nothing worse than talking to a prospect whose business and mental health is in a pickle because they trusted their accountant to do their stuff once a year. That’s where a decent accountant comes in. If you get a good one (and pay for the right service level), they should be working with you to, keep you out of trouble and save you a bob or two along the way. But picking the right one can be a right palaver. After all, so many of them sound the same. So here’s what to look out for:
You wouldn’t let some bloke in the pub operate on you, would you? Same with your business. Don’t get some backstreet bookkeeper fiddling with your finances. Make sure they’ve got the proper certificates and licenses, alright? A good way to check is look for institute and software logos on their website.
Are they qualified through one of the main accountancy bodies (the ACCA, ICAS or CIMA)? What is their speciality and what industry experience do they have? Whatever your specific requirements are, make sure that they have the experience and the kind of services that you need. (E.g. goal setting, tax planning or cash forecasting as well as compliance services).
The next factor to consider when choosing an accountant is money! There are still some traditional accountants out there, who charge by the hour, like a meter on a cab. Others do a set price, no matter how much you bend their ear. By the way, we charge a fixed fee as we know our clients like certainty around what it will cost.
The most common complaint about accountants is the disappearing act. Don’t get me wrong, they’ll be reminding you to send in your documents when your self-assessment tax return is due. Some may bill you a fortune to do nothing more than pop some numbers in their software. Then vanish again for another 9 months. Think of a decent accountant as financial partner, critical friend and the voice of sanity. After all, there isn’t much I haven’t seen in 30 years of working with construction and property company owners.
A good accountants should help you navigate those pesky growing pains, and keep your business on the straight and narrow, all year round. Not just when the taxman comes knocking! Or when that nasty unexpected brown envelope arrives.
When choosing an accountant, check their accessibility (referrals and reference checks is a good way to see whether you’re likely to be fobbed off to a junior). It’s also handy to see how proactive they are (e.g. suggesting ways to save you money and offering to introduce you to good contacts) all year round.
You’ve got to feel alright with them. Like chatting with a mate down the pub. If explaining your business feels easy, that’s good. For example, we don’t make any judgement if a client turns up from a busy day on site with their dirty work clothes still on. Or if the air gets turned somewhat blue while we are talking.
You and your accountant will need to be a team. So find someone who gets your vision and what you are about, not some youngster with a laptop covered in stickers.
Whether you’ve been trading for a while or new into business, a decent accountant is worth their weight in gold. They’ll be your financial sidekick (sorry cheesy!), sorting the numbers and giving you the right advice. The sooner you get a good one on your team, the better. But remember, choose wisely, alright? Like finding the perfect partner for a game of darts – you have to be on the same wavelength!
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
Self-employment can be tempting, especially if you’re fed up chasing the weekend or longing to be your own gaffer. Before you chuck in the towel at your day job and daydream about all the time you’ll have for brew breaks (because let’s be honest, that’ll be replaced with a different kind of hectic), take a good, long look at yourself. Self-employment is not for wimps or those who are work-shy – despite what you may think about the gaffer. If you are going to put food on the table and take your missus to a nice place for her holidays, you are going to have to work hard and handle pressure.
So, grab a cuppa, stick your thinking cap on, and answer these questions truthfully:
1) Are you confident in your skills and expertise?
2) Do you have skills and passion for the business you’re considering?
3) Do you enjoy working alone?
4) Got the knack of prioritising tasks like a pro?
5) Got the get-up-and-go to crack on without someone cracking the whip?
6) Up for wearing all the hats – marketing, sales, the whole lot?
7) Sharp enough to pick up new tricks quickly?
8) Got the initiative to chase new ideas?
9) Can you single-handedly make the call when the going gets tough?
10) Are you able to pick yourself up, dust yourself off and problem solve in tricky situations?
11) Do you have the knowledge and skills to make your own product or service?
12) Do you know how to promote yourself so that others will buy from you?
13) Happy to build potential connections in the business world?
14) Thick-skinned enough to handle a bit of a pay cut while you get your business off the ground?
15) Are you willing and prepared to put in long hours of graft at the start?
16) Have you given the family the heads up on the potential impact at home?
17) Can you live with high levels of uncertainty?
18) Can you take a knock and keep on ticking?
19) Good at turning a penny into a pound?
20) Are you a dab hand at setting goals and smashing them?
Give yourself a point for every Yes answer and give yourself a mark out of 20. If you scored 16-20, self-employment will be a walk in the park for you!
If you answered “no” or “maybe” to a lot of the questions, self-employment might not be your cup of tea right now. You may need to do some thinking and soul searching before you take the plunge.
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By no means is this self-employment quiz the decider for whether you choose to run your own business or not. However, it is based on the qualities, skills, and traits you will need to become a successful business owner! Even if your ambition level is to “only” work with yourself with a few subbies helping you out on jobs.
If you want to go for it and become self-employed, look at where your ‘No’ answers are. If you know you’re not a dab hand with money, consider getting an accountant or bookkeeper as early as possible.
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
You all want your firms to thrive, don’t you? It can be a right handful sometimes, you know the feeling. You want to see it grow, not leave you feeling like you’ve been chasing your tail all day.
The key is taking control of your time, use it like a bag of gold. Here’s a few tips on how to do that…
Let’s talk about simplifying your operations to get things running a bit smoother. We’re looking to identify any problems in your current processes, there’s always room for improvement.
On that note, one of the best ways to increase productivity is to invest in some decent practice management tools. We’re talking software that’ll make dealing with clients, working as a team, keeping track of jobs, and the day-to-day grind a whole lot easier.
To stop spending so much time faffing about, start prioritising effectively. Use the Urgent Important Matrix to do this.
Group your tasks into 4 quadrants:
Once you’ve grouped your tasks, you’ll know what you need to focus on and what you need to avoid.
Now you have identified tasks that need to be done, delegate the low-value work to your team so that you can focus on the ones that require your level of skill.
If you delegate effectively (i.e. delegating authority as well as tasks), you can take a step back knowing the day-to-day stuff is running smoothly. This frees you up to focus on the real game-changers, the things that’ll make the firm grow.
You need to invest more time in quadrant 2, doing the planning and budgeting and development activities that will grow your firm. It’s easy to forget things in the daily grind, chaps. Schedule those important jobs – it’s the best way to ensure they get done.
If you prioritise these tasks and appoint the rest, you’ll have time tosit down with a cuppa, and focus on them. You just need to find the days and times where you can work productively and without any interruptions.
It really is as simple as that. To build your business, not your workload, you need to follow these 4 steps. When you do these consistently, you’ll find that each day follows a more chilled approach:
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
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