UK Tax complications and Crypto-currency

Luke_7ucas

Luke_7ucas

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Hi.

Post directed to UK residents and non-residents who are subject to UK tax law.
I started trading & mining crypto-currency in the beginning of December 2017.
Since I am an accountant I thought about tax complications before I made any profit.
The below relates to legal/ not prohibited application of UK Tax law.
Please note, your situation as a taxpayer might be different to mine. Ask you accountant whether something of your interest from below will apply to your case.


1. What is crypto-currency from the Tax perspective?

Crypto-currency is a digital asset.
"A digital asset, in essence, is anything that exists in a binary format and comes with the right to use. Data that do not possess that right are not considered assets. Digital assets include but are not exclusive to: digital documents, audible content, motion picture, and other relevant digital data that are currently in circulation or are, or will be stored on digital appliances…" Thank you Wikipedia.


2. What are the most common activities which relate to crypto-currencies & which Tax relates to it.
  • Mining - Income Tax or Capital Gains Tax or Corporation Tax
  • Trading
    • Margin Trading - considered as gambling = tax free
    • Market Exchange - Income Tax, Corporation Tax
  • Investing
    • Long term HODL - Capital Gains Tax, Corporation Tax
    • ICO investment - Capital Gains Tax, Corporation Tax
  • Cryptogames (think: Cryptokitties, Ethercraft) buying and selling virtual goods in exchange for digital assets. - No Tax, Income Tax, Corporation Tax
  • Receive Crypto-currency as a gift - Inheritance Tax

3. How to determine which Tax treatment to apply?

There is no golden rule, or one fits all method.
I will risk using statement: Every "portfolio" once cashed will need to be reviewed under the current rules and correct treatment must be applied.

It does not really tell you much apart from the fact that the Queen will want to get her share.

4. What can be done to pay less, nothing or even get a refund.

https://en.wikipedia.org/wiki/Digital_asset


 
Last edited by a moderator:
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Add the link from Wikipedia as source as it's from there. When copying and pasting attribution is required
 
If any UK resident came to this thread looking for tax advice and was disappointed, it is as follows:

When you sell the asset (coins) - you would be required to pax Capital Gains Tax. However, that only applies on the sale of the asset.

Which in effect, means that you only get taxed when you transfer the coins back to fiat currency. So if you were to transfer your profits throughout coins, you wouldn't have to worry about tax until you wanted to cash out.

TAD (qualified accountant)
 
You didn't identify any tax complications, or add any of your own opinions as an accountant. You couldn't even give the perspective of digital currency from a reputable source, you used WIKIPEDIA.

100% spam.
 
I'd expect some crypto specific laws in the UK soon
 
jamie3000 said:
I'd expect some crypto specific laws in the UK soon
Click to expand...
Yeah, I think they made the law in 2014 when BTC was nothing major.

But, for now, I'm not complaining.

Although I don't think their law change would be major anyway, maybe just like the foreign currency laws they have now for USD etc. You pay tax based on the currency's value according to [CMC etc] for that week/month.

It would be stupid if say I earnt 1BTC for doing xyz, paid 20-40% tax on that based on its value that week and then had to keep on paying tax on that same BTC as its value rises and, more importantly, falls. Imagine how much effort it would be for them to refund everyone for each time they "made a loss" as the price fluctuates so much.
 
I was still typing when 30min window expired and few lines are gone now.
Well, this is not a post to replace your accountant and tell you what is the right thing to do.
I wanted to share few ideas I had... but reading some of you I would rather spend this time on something else now.
Let's leave the work in the office ;-)


blogzandstuff said:
Add the link from Wikipedia as source as it's from there. When copying and pasting attribution is required
Click to expand...
I cannot paste links yet. But thank you for the advice.


TheAlmightyDada said:
If any UK resident came to this thread looking for tax advice and was disappointed, it is as follows:

When you sell the asset (coins) - you would be required to pax Capital Gains Tax. However, that only applies on the sale of the asset.

Which in effect, means that you only get taxed when you transfer the coins back to fiat currency. So if you were to transfer your profits throughout coins, you wouldn't have to worry about tax until you wanted to cash out.

TAD (qualified accountant)
Click to expand...
The tax you need to pay if any will be determined based on the substance of the transaction and your overall activity.
I strongly believe you should not advise others "what tax they will pay"
This is exactly what I tried to avoid since starting this post.
Their circumstances might be different to yours.
If you believe that CGT is the only one you have to worry about then good luck.

MikeyMikey13 said:
You didn't identify any tax complications, or add any of your own opinions as an accountant. You couldn't even give the perspective of digital currency from a reputable source, you used WIKIPEDIA.

100% spam.
Click to expand...
Thank you. Once BHTC is out you make sure you spend the extra coins well. Just be careful with lavish lifestyle. It doesn't suit you.
 
Im in the UK. I paid capital gains on "bitcoins" I bought outside the current tax year and Income tax on "bitcoins" I bought within the current tax year. This is only at the point of changing back to GBP. I paid that tax bill before Christmas and that's on advice of my accountant of 20 years who in her own admission is not 100% on it.

Basically that seems to be the safest way to play it as the UK tax laws are still a bit vague it but its still way better than what the US is doing with crypto to crypto trades apparently being a taxable event. Thats madness and I cant see how it can be enforced.
 
tb303 said:
Im in the UK. I paid capital gains on "bitcoins" I bought outside the current tax year and Income tax on "bitcoins" I bought within the current tax year. This is only at the point of changing back to GBP. I paid that tax bill before Christmas and that's on advice of my accountant of 20 years who in her own admission is not 100% on it.

Basically that seems to be the safest way to play it as the UK tax laws are still a bit vague it but its still way better than what the US is doing with crypto to crypto trades apparently being a taxable event. Thats madness and I cant see how it can be enforced.
Click to expand...
I read that the UK government is putting in place legislation that it has to be declared, so tax can be paid. Our government doesn't miss a trick lol!
 
blogzandstuff said:
I read that the UK government is putting in place legislation that it has to be declared, so tax can be paid. Our government doesn't miss a trick lol!
Click to expand...

If they did put in place this type of legislation, it wouldn't mean the end of trading Cyrpto's (Not that I think it's a good idea). It would just mean that the market would migrate to SpreadBetting Platforms.
 
blogzandstuff said:
I read that the UK government is putting in place legislation that it has to be declared, so tax can be paid. Our government doesn't miss a trick lol!
Click to expand...
I will not be suprised at all because the 17-18 tax year will be even more interesting due to the massive gains. But how will hmrc or the irs track crypto to crypto trades from a tax view once decentralized exchanges take hold. It will be like trying to tax bittorrents.
 
tb303 said:
I will not be suprised at all because the 17-18 tax year will be even more interesting due to the massive gains. But how will hmrc or the irs track crypto to crypto trades from a tax view once decentralized exchanges take hold. It will be like trying to tax bittorrents.
Click to expand...

They would attempt to do it the same way they dig up the cash businesses that avoid VAT.

It is likely that if you were to declare Crypto income on your Tax Return, you would become a high risk individual - they would collate these people and randomly put a handful under investigation. Any they caught, they would make an example of.

That's how it tends to work at least.
 
TheAlmightyDada said:
They would attempt to do it the same way they dig up the cash businesses that avoid VAT.

It is likely that if you were to declare Crypto income on your Tax Return, you would become a high risk individual - they would collate these people and randomly put a handful under investigation. Any they caught, they would make an example of.

That's how it tends to work at least.
Click to expand...
But what if I "lose" my BTC wallet details?
 
TheAlmightyDada said:
They would attempt to do it the same way they dig up the cash businesses that avoid VAT.
Click to expand...
Sorry but I think you misunderstand what a proper decentralised exchange can be. There would be no business to dig up just individuals running software.
 
tb303 said:
I will not be suprised at all because the 17-18 tax year will be even more interesting due to the massive gains. But how will hmrc or the irs track crypto to crypto trades from a tax view once decentralized exchanges take hold. It will be like trying to tax bittorrents.
Click to expand...
This is a bit out of my league, I read it. I suppose it's like everything else in the UK, you can't hide and will get caught eventually
 
Hmm in regards to capital gains only being charged when you exchange back.

what about if I paid for my shopping? tv, laptop, purchased interested in property?

Seems like there still is loopholes. There is a few services online that will let you group buy property with crypto so it could be a good way to circumvent tax.
 
tb303 said:
Sorry but I think you misunderstand what a proper decentralised exchange can be. There would be no business to dig up just individuals running software.
Click to expand...

No, I do understand - I even wrote a thing for newbies. Regardless how effective a truly decentralised exchange would be - nothing would stop the government from attempting to control & regulate it. Which is what I said.

They could demand that all exchanges that operate within the UK provide full statements to clients at Y.E. much like platforms like IG are required to do with their stock trading platform. It doesn't mean that those companies would comply, but it wouldn't stop our government from attempting to get a piece of the pie.


EDIT. @MikeyMikey13 - There will always be loopholes. :)
 
TheAlmightyDada said:
No, I do understand - I even wrote a thing for newbies. Regardless how effective a truly decentralised exchange would be - nothing would stop the government from attempting to control & regulate it. Which is what I said.

They could demand that all exchanges that operate within the UK provide full statements to clients at Y.E. much like platforms like IG are required to do with their stock trading platform. It doesn't mean that those companies would comply, but it wouldn't stop our government from attempting to get a piece of the pie.
Click to expand...

With decentralisation there would be no "exchange" operating in the uk to be forced to keep records for tax purposes. There would just be two individuals on the blockchain exchanging something.

Crypto to crypto is one thing. The weakness in all this will always be crypto to fiat. That is the only point they can reasonable try to tax it and the only point they can exert control on it.
 
There would just be two individuals on the blockchain exchanging something.
Click to expand...

For us to understand how the government might work on taxing Cyrpto, we have to look for real world examples today. The closest thing we have to the above would be the exchange of cash from one party to another for services rendered, with the party receiving the cash never declaring or banking it.

Let's take you and I for example. If I were to pay you £1,000 cash for a service and you never banked that cash, you may think that the government have absolutely no way of taxing you - or for that matter, even knowing about it. Putting aside for a moment the fact this in this situation you would be blatantly evading tax. You would probably be correct with the assumption that HMRC would never find out.

However, this wouldn't stop them from attempting to. I was careful in my choice of words in the first post. Let's say we were not the only two people to evade tax this way - and thousands of others did the exact same transaction. Thinking that a group of inspectors trained to go after this particular type of fraud/evasion wouldn't hit at least a few times is naive at best.

It may be because I am on the front line (so to speak) and I see people get caught doing things they thought;

a) everybody did; and
b) There was no way that they would get caught.

That makes me a little more on the cautious side.

I think this is going to devolve into you arguing the semantics of Blockchain and me arguing the semantics of HMRC and their inspectors. Regardless, I appreciate the conversation, it got me thinking - so thanks.

TAD
 
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