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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
We’ve all had those moments where everything seems to be going smoothly, then the rug gets pulled out from under you. For one of my clients, this rug was more of a carpet – a posh, expensive one – that had been soiled by years of neglect, bad luck, and some unfortunate decisions. The story starts with a bloke who had his head in the clouds, making more money than he could keep track of, but found himself in a right financial mess. If you’re in the property business, particularly dealing with VAT compliance, this might hit closer to home than you’d like.
Let’s set the scene: a successful property business owner who could easily pay his bills with his spare change, was too busy living the high life to bother with the donkey work, like his finances. If he needed something done, he signed the papers and moved on, trusting the details to take care of themselves. It worked – until it didn’t.
The vision was a hotel turned luxury block of flats in a prime spot for the ultra-wealthy. Two top-end penthouses, four slightly smaller ones, and then a collection of swanky apartments. He’d even secured a 12-month option on the hotel. The architect assured him planning permission was a done deal, so he forked out over £100k into getting the plans drawn up. With what he thought was planning permission in hand, he approached a funder who was ready to give him over £14 million. There was just one minor problem, the architect had jumped the gun. The planning permission hadn’t actually been granted, and the whole deal collapsed like a house of cards. In the thick of Covid. Just to make matters a hundred times worse.
And it didn’t end there. His books hadn’t been touched for four years, so reclaiming the VAT became a ballache. And I won’t even go there with the state of his personal and corporate tax affairs. Which brings me on to why VAT compliance is so important.
VAT compliance might not be the most thrilling part of running a property company by all means, but it’s one of those things you’ve got to get right. Mess it up, and you’re looking at penalties, investigations, or worse. It’s not just about avoiding trouble, either. Proper VAT management can save you a fair amount of cash, especially when you’ve got big projects on the go.
When it comes to VAT, property companies often trip over the same issues:
So going back to my client story, after the deal collapse and four years of neglected accounts, my client had to get serious about sorting his finances. We rebuilt his books from scratch, digging through old records, finding missing paperwork, and piecing together his VAT reclaim. It wasn’t glamorous work, but someone had to do it. By the end of it, we’d turned an initial VAT reclaim of £38k into a whopping £130k – money that made a real difference in getting him back on track.
But, as you can imagine, this level of reclaim didn’t go unnoticed. This is HMRC we’re talking about, of course it triggered an investigation. Thankfully, we’d done the legwork, ensuring everything was above board. The key takeaway? If you’re going to reclaim significant amounts of VAT, make sure your records are immaculate.
With his finances back in order, it was time to ensure he didn’t end up in the same mess again. So I had to lay out a couple of ground rules. Starting with the non-negotiable, no major financial decisions to be made without consulting me. He had to give Cloud Accountancy full say-so of his finance department. All bills are to be paid through Apron (no more relying on the wife!). And most importantly develop a cash flow forecast and solid business plan to keep everything on track.
The biggest takeaway from this client’s story is that success isn’t just about making money; it’s about managing it well. Here are some lessons worth noting:
VAT compliance might not be the most exciting topic, but getting it right can mean the difference between thriving and just about surviving in the property game. Don’t let poor record-keeping or a lack of knowledge catch you out. And if you’re already in hot water, do something about it now. There’s always a way forward, it might just take a bit of graft (and the right people in your corner) to get there.
Need help with your VAT affairs or just fancy a chat over a brew? Give me a shout. If there’s one thing I’ve learned, it’s that no problem is impossible with the right approach – and maybe a mini dachshund like Toto by your side for moral support.
Interested to find out more?
Call us on 01617 985789
Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb
My client, let’s call him Dave, was pretty trusting with his money. He knew his accounts and bookkeeping were important. However, he left the financials to his other half, thinking all was ticking along fine and under control. By financials, I mean his wife ran his payroll, did his books and payments. In fact, there were many bank accounts that his wife was the only signatory for. After all, they were both in it together and wanted the same things. Didn’t they?
But unfortunately, this wasn’t the case. As with many things, relationships often go well when the business and money is good. When Covid hit, many of Dave’s projects were put on a ‘stop’ and several large outstanding invoices were left ‘pending’. These were not the only serious issues Dave faced. He’d stopped looking at his finances and accounts. He just believed that his wife had it all in hand. His accounts were a mess and Dave didn’t know what he owed and how much he could take out of his bank account. A number of tax payments to the revenue had been missed and the brown envelopes were mounting up.
As you can imagine the pressure mounted up. As with many husband and wife teams, the relationship needs to be pretty strong to cope with a business under immense strain. Sadly for Dave, his wife decided to chuck him out and ask him for a divorce. I then get a very distressed phone call as Dave now realises that he hasn’t got access to his bank accounts and his wife is holding the dog and his passport as hostage until Dave agrees to her demands. By the way, no word of a lie, this part of the story is absolutely true.
Oooops.
As an accountant with decades of experience of cleaning up messes often in hospitality and construction, you could call me an expert in this scenario. I will confess that sorting out husband and wife relationships are not my thing. But getting Dave back up and straightened out with the tax man and solvent again is my thing.
Here’s how I saved Dave and his firm from going under.
With a bit of hard graft and some sharpness, we managed to turn it around:
There’s several lessons learnt here:
Bad things happen, even to the best of us. But with the right accountants behind you, you can pull through anything—just like Dave did.
So, moral of the story: Don’t be too trusting and if your finances are looking a bit off, don’t hesitate to give me a shout. Let’s get you sorted before the ref blows the whistle.
We’ve all had those moments where a letter drops through the letterbox and you instantly get that horrible sinking feeling in your stomach. For many construction business owners, that dreaded letter comes from HMRC. It’s a nudge letter, a not-so-subtle reminder that your tax affairs might not be as squeaky clean as you’d hoped.
Unfortunately, HMRC aren’t just sitting around twiddling their thumbs. Their advanced systems can spot a discrepancy a mile away, with accuracy. If you’ve been a bit sloppy in your record-keeping or missed a few deadlines, you might find yourself on their hit list.
One of my clients received a nudge letter from HMRC. At first, he was a bit flustered. After all, he’d been running his construction business for years and thought he had everything under control. But as I went through his records, I discovered a few minor errors that could have led to significant tax penalties.
If you know me, you know I’m not one to shy away from dealing with HMRC. So, I quickly got to work, reviewing his records, finding the errors, and communicating with HMRC to address their concerns. Luckily, thanks to swift response, we were able to resolve the issue with a slap on the hand and no major consequences.
Luckily, he had me (a tax professional that specialises in construction) at hand to handle it promptly. However, if you don’t already have an accountant I would strongly recommend following the steps below as soon as possible.
Remember: This is not a time to DIY it.
Construction is one of the most time-demanding industries, so falling behind on the financial side of things is something I see and deal with often. Making sure you set time aside each month to check your books are up-to-date will help to avoid a run in with the tax man. If you really don’t think you have time to do this, it probably means it’s time to look for an accountant that can take the weight off your shoulders.
To avoid future HMRC scrutiny, consider these tips:
Don’t forget, a timely response to an HMRC nudge letter can save you time, money, and stress. Don’t push it aside or ignore it, unless you want the situation and repercussions to escalate.
Consequences of ignoring a nudge letter
Ignoring an HMRC nudge letter can lead to serious consequences, including:
Don’t let a simple oversight turn into a major headache. If you receive a nudge letter, take immediate action. Consult with a tax professional to understand the implications and develop a strategy to resolve the issue.
Need help with your tax affairs? Let’s chat over a cuppa.
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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