What is Cryptocurrency?
Cryptocurrency, described by many as ‘Money 2.0’, is, essentially, a form of digital money – unlike traditional currencies like GBP, most cryptocurrencies are decentralised.
Decentralisation is seen as one of the key reasons behind the growth of cryptocurrency, as it helps people to see them as more secure digital alternatives to traditional fiat currencies.
The most popular cryptocurrencies, such as Bitcoin and Ethereum, often make mainstream news due to their price; however, each cryptocurrency is different, and there are thousands of other cryptocurrencies all based on different technologies with different features and objectives.
Crypto can be transferred, stored, traded electronically, and can even be used to purchase goods and services online. HMRC doesn’t see cryptocurrency as money or currency, which is an important consideration to account for when it’s time to pay your taxes and submit your returns.
Referred to by HMRC also as “crypto” and/or “crypto assets”, these broader terms cover not only the more traditional crypto coins, but also utility and security tokens.
The growth in the sector, particularly in recent years, has led to a greater widespread interest. Individuals and companies alike have made significant gains on investments in crypto.
How is Crypto Taxed?
In short, it depends. In most cases, where crypto is held personally, any gains made will typically be subject to Capital Gains Tax but there is more to the sector than simply buying and selling.
Not only can crypto be purchased, but it can also be acquired by other means, such as mining and staking. The way the crypto is acquired will dictate the tax treatment, and even crypto that has been mined and not yet disposed of may still be subject to UK tax (income tax, specifically).
A common misunderstanding with crypto is that it must be sold in exchange for a traditional currency to be subject to UK tax. However, whenever a crypto asset is disposed of, it will be subject to tax – this could mean sold, gifted, exchanged for another crypto asset, used to purchase an item or service and more. As previously stated, it is likely a disposal would be subject to Capital Gains Tax – however, there are instances whereby HMRC may deem crypto to be subject to income tax, as this is still a relatively grey area.
Please note that this is a new, fast-moving, sector. As such, the tax treatments of crypto continue to develop and guidance could quickly become dated. HMRC’s view may well evolve further as the sector develops.
Can My Limited Company Invest in Crypto?
Yes, crypto can be purchased via a limited company. However, depending on your circumstances and plans, it may not be the most tax-efficient option.
It’s important to note that Gorilla Accounting cannot provide investment advice. We would always recommend that you do your own extensive research on any potential investments.
Just like with a bank account, or any other investment platform, the platform used must be in the company name, else the holdings will be viewed as personal (and therefore subject to personal tax). The payments to the platform, if in a personal name, would be treated as a director loan and any gains would be subject to tax on a self-assessment tax return as opposed to corporation tax via the limited company.
What if the Investment Fails?
Not all crypto projects are successful, and many may fail despite significant investment.
When this occurs, the buyer may be able to make a negligible value claim, depending on the circumstances. A negligible value claim can sometimes be made where the asset has become worthless or is now deemed to be of negligible value and is treated as though it has been disposed of.
It is worth noting that, just because an asset has become worthless to the buyer, it does not necessarily mean that this view is shared by HMRC. A common example of this, specific to crypto, is where the owner of the asset loses access to it – this could be via theft or a mistake (for example, forgetting a password/key).
Where the owner loses access to crypto, this does not affect the owners’ rights to the asset nor does it affect the value of the crypto itself and, typically, HMRC will not deem this to be a disposal.
How Gorilla Accounting Can Help
At Gorilla Accounting, we work with self-employed individuals from many different sectors who run a wide range of businesses. No case is alike and, so it’s crucial that you choose an accountant who can understand your specific needs and requirements.
This couldn’t be truer of businesses, and individuals alike, that use crypto. We can help you navigate the complex world of UK tax laws and understand the options available to you – we can also help you to make your business more tax-efficient!
So, if you deal with crypto, you can rest assured that we’ll help with:
- Tax implications of crypto, both personally and via a limited company.
- Pooling crypto – required for capital gains tax purposes.
- Preparation of self-assessment tax returns inclusive of crypto gains and trading.
- Crypto trading via limited company.
We know you’re busy and would rather run your day-to-day instead of worrying about learning all the ins and outs of crypto tax law, so let us take care of it for you.
We can answer any questions you may have about crypto and taxes, so speak to us today on 0330 107 9678 or request a call-back and we’ll be happy to assist.