Whilst cryptocurrency is a relatively new asset, it is becoming more prevalent as access becomes more accessible for individuals. It is however important to consider the taxation position of the transactions being undertaken.

In early 2021 HMRC published their cryptoassets manual and whilst this is not legally binding, it does provide guidance as to how HMRC would expect such assets to be taxed.

In addition, HMRC have established a cryptocurrency taskforce whose objective is to identify individuals who have not correctly declared or paid tax on any gains made. Where identified, this can lead to costly enquiries and opens up the possibility of penalties charged on any undeclared tax found to be due.

Taxation

HMRC note that for most individuals cryptoassets will be held as a personal investment and any gains made will be taxed to capital gains tax and therefore subject to an annual exempt amount (currently £12,300) with gains above this taxed at capital gains rates of up to 20%. This means that small gains are unlikely to create any additional liabilities however consideration should be made as to whether reporting is required on your annual tax return.

It would only be in exceptional cases that HMRC considered the taxpayer to be running a business, thereby subjecting any gains to income tax instead of capital gains tax.

HMRC define a disposal as:

• Selling a token 
• Exchanging tokens for a different type of token 
• Using tokens to pay for goods or services
• Giving away tokens. 

There is no disposal if the individual retains beneficial ownership of the token throughout the transaction, for example moving tokens between wallets.

When calculating the gain you need to record each time a token is bought, sold or exchanged and HMRC expect you to retain a number of records for each transaction in case these are required for an enquiry or review.

The taxation of cryptoassets, whilst relatively new, is an area that HMRC are taking a keen interest in to ensure that declarations are correctly made and all taxes paid. The taxation of such assets can be complicated and if you do have any concerns over any cryptoassets held or traded, we would be pleased in assist in ensuring your tax obligations are being met.