How much tax to pay HMRC on cryptocurrency?

How does tax on cryptocurrency work for IT contractors?

How much tax will you pay HMRC if you’ve got such digital money?

And how you can track your tax obligations effectively if you’re in the crypto market?

All three are good questions and we’ll answer them here, writes SG Accounting.

It’s timely to ask crypto-tax questions

If you currently have or have ever had dealings with cryptocurrency, chances are you’ll have a tax liability from HMRC.

While in the past crypto was considered to be exempt from tax, HMRC has now made it abundantly clear that there are no grey areas, and crypto should be taxed.

Here, exclusively for ContractorUK, we’ll explore how cryptocurrencies work from a tax standpoint and, as the January 31st deadline for 2023-24 tax returns looms, explain how to navigate your tax situation if you use cryptoassets.

HMRC's history with cryptocurrency tax

HMRC guidance for ‘cryptoassets’ back in 2014 suggested that highly speculative transactions may not be subject to tax, due to their likeness to gambling.

This guidance created a widespread belief that any gains from crypto trading would not be subject to tax.

HMRC has closely watched crypto’s popularity grow since this time, and has now clarified its stance.

HMRC has now made it explicitly clear that the buying and selling of cryptoassets are not comparable to gambling. Therefore any gains or income are taxable, and likely to be subject to Capital Gains Tax (CGT) and/or Income Tax.

Will you need to pay tax on your crypto?

In short – yes.

Although many financial institutions still do not recognise cryptoassets as money or currency, HMRC is treating them similarly to shares, meaning they are subject to Capital Gains Tax and/or Income Tax.

The type of transaction will determine which type of tax you are due to pay.

How much tax do you owe on your cryptoassets?

The different types of transactions you make with crypto will affect the types of tax you’ll be subject to.

For example, for capital gains that exceed the tax-free (annual) allowance of £3,000, you will be subject to pay 18% or 24% tax (the rate increased from 10% and 20% respectively from October 30th 2024).

Any income generated from crypto, such as by staking or mining, will incur tax rates between 20% and 45% as per whichever income tax band you’re within.

Can HMRC trace crypto?

Yes, HMRC can effectively track cryptoasset transactions.

By using information from crypto exchanges such as crypto.com the UK tax authority can track and monitor crypto activities and target those who are not fulfilling their tax obligations correctly.

HMRC has access to a data-sharing platform with UK exchanges which shows data all the way back to 2014! It also has ‘Know your Customer’ information you’d have provided during an exchange or wallet sign-up.

HMRC has been active in sending out crypto ‘nudge’ letters, prompting individuals and businesses to report their activity. It also issued a warning last week ahead of the self-assessment deadline.

Don’t take a ‘wait and see’ approach as a contractor with crypto-related income and gains

If you have received a nudge letter from the taxman about cryptocurrency, it should serve as a good prompt to get your ducks in a row, before HMRC comes knocking for unpaid tax.

If you have not yet received an HMRC nudge letter and think you’re in the clear but are a cryptoasset user – including if you have merely exchanged one type of cryptoasset for another, we strongly advise you to still speak to a crypto tax specialist - like us - to understand your obligations. You also need to understand the timescales for what needs to be paid and when. With HMRC and crypto we believe it’s a case of ‘when’ rather than ‘if’ we see investigations.

Thursday 16th Jan 2025
Profile picture for user Matthew Townsend

Written by Matthew Townsend

Matthew started his career in tax and accounting back in 2016, and first joined SG Accounting in 2017. 

He particularly enjoys working across a diverse client type, ranging from buy-to-let landlords to limited company directors, assisting them with all of their personal tax needs.

Matthew brings a huge amount of experience to his clients, having worked in sectors like retail and corporate banking, and more recently working alongside contractors within the aerospace sector.

Printer Friendly, PDF & Email