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Crypto Tax UK Guide for 2022

Anyone in the UK who has had dealings with cryptocurrencies may need to pay tax. It’s important that you report your profits accurately and pay any tax due by the deadline if you want to avoid financial penalties.

If you’re not sure whether you need to pay tax or how much tax you will need to pay, we’ve got you covered. This guide will take you through HMRC’s tax guidance for crypto and some solutions for making it easier to calculate your taxes accurately.

Do I Need to Pay Tax on Crypto in the UK?

Whether you need to pay tax on your crypto will depend on the nature of your activities and how much you make from them. We will discuss which activities are taxable below and whether they result in Capital Gains Tax or Income Tax.

Investing and Trading  

Buying crypto is not taxed but Capital Gains Tax will apply whenever you “dispose” of your cryptocurrency, which could mean selling it, swapping it, spending it, or gifting it (except to a spouse). 

Staking, Lending, and Other DeFi Activities

Profits from DeFi activities such as lending and staking will be subject to Capital Gains Tax if the return is considered capital, and Income Tax if the return is considered income. 

A return is more likely to be considered income when it is paid periodically, has a pre-agreed amount, or is received for providing a service.

A return may have the nature of capital when these factors don’t apply and the return is uncertain and speculative. In this case, Capital Gains Tax will apply.

Getting Paid in Crypto 

If you receive crypto in return for employment, you will need to pay Income Tax on it, as well as National Insurance.

Your employer is responsible for paying these costs. If you’re self-employed, you’ll need to pay the relevant sum yourself in pounds.

Mining 

If you mine or validate a blockchain as a hobbyist rather than a business then any coins or tokens you receive will be subject to Income Tax. Capital Gains Tax will also apply when you dispose of any crypto you have mined.

If you mine as a business, you may instead be subject to Corporation Tax on profits, and chargeable gains when selling mined coins. See HMRC’s mining guidance for more info.

Airdrops

If you receive an airdrop in return for doing something, such as participating in a campaign or using a certain blockchain or app, it will be taxed as income. If, however, you receive an airdrop without doing anything in return, it is not subject to Income Tax.

Capital Gains Tax will also apply when you dispose of airdropped crypto.

NFTs 

Although there is no specific guidance on NFTs, they will be viewed in the same way as cryptocurrency so you will need to pay Capital Gains Tax when you dispose of them. 

Additionally, if you buy an NFT with cryptocurrency, this counts as a disposal of your cryptocurrency and so would trigger Capital Gains Tax.

Allowable Costs

There are some expenses that are considered “allowable costs” and so can be deducted from your gains before Capital Gains Tax is applied. According to HMRC, these are:

  • Transaction fees paid before the transaction is added to a blockchain

  • Some exchange fees

  • Advertising for a buyer or seller

  • Drawing up a contract for the transaction

  • Making a valuation so you can work out your gain for that transaction

HMRC does not consider mining expenses such as equipment or electricity to be allowable costs for Capital Gains, but if you mine as a business activity, you may be able to deduct your costs as expenses. 

Check out the “Mining Guidance” page in our HMRC Links section below for more information.

How Much Tax Do I Need to Pay?

How much tax you pay in the UK depends on your income. The tax rates are detailed below.

Capital Gains Tax

The first £12,300 of capital gains you make during each tax year is tax-free, no matter what. 

Any gains you make above that amount will be taxed at one of the following rates according to the size of your income.

Taxable Income               Capital Gains Tax Rate

Up to £50,270                   10%

Over £50,270                    20%

Income Tax

If you generated income from crypto, you will need to add this to any other income you made during the tax year to find which rates apply to you.

Taxable Income                 Income Tax Rate

Up to £12,570                     0%

£12,571 to £50,270            20%

£50,271 to £150,000          40%

Over £150,000                   45%

How Do I Calculate My Taxes?

You can calculate how much tax you will need to pay by keeping track of how much income and capital gains you make throughout the tax year and seeing which of the tax bands above you fall into.

The easiest way to do this is with the aid of tax software. You simply sync the software with your exchanges and wallets, and it will do all the tricky calculations required for pooling (the cost basis method used by HMRC). Getting this right is important if you want to avoid a fine for misreporting.

Exchanges may sometimes lose or delete users’ data but tax software automatically updates and stores all the records you need. If, however, you decide to keep records manually, HMRC requires you to record the following information for every transaction you make.

  • Date of transaction

  • Cryptocurrency involved

  • Number of tokens

  • Whether they were bought or sold

  • Value of the tokens in GBP

  • Pooled costs of each cryptocurrency before and after disposals

  • Bank statements and wallet addresses

Tax Software

1. CoinTracker

CoinTracker is our top choice for calculating your crypto and NFT taxes. Its clear layout makes it easy to see your portfolio allocation and investment performance in real time, while CoinTracker’s cost basis optimisation and tax-loss harvesting tools will help you save money year-round.

2. Koinly

Koinly makes it simple to import your trades, track your portfolio, and generate tax reports. With over 300 wallets and exchanges supported and a variety of price tiers available—including a free version—Koinly is popular with a wide range of crypto traders and investors.

3. TokenTax

TokenTax provides a full suite of crypto tax services, with access to teams of experts and deep industry knowledge as well as their tax accounting software. There are different plans to suit hobbyists and professionals, with a tax-loss harvesting dashboard and all the tax forms you need.

How to Pay Crypto Taxes in the UK

You can follow these simple steps to ensure you pay the correct amount of tax and avoid a fine. The tax year in the UK is from 6 April to 5 April the following year. Each year, you will need to submit a tax return for the previous tax year.

  1. Keep accurate records. Record the necessary information for all your transactions throughout the tax year, or simply use one of the tax software providers above to do this for you.

  2. Register for Self Assessment. If you didn’t send a tax return last year, you will need to register for Self Assessment by the deadline on 5 October.

  3. Complete your tax return. Fill in your Self Assessment tax return (SA100) and the supplementary capital gains section (SA108) if required. You can save time by using tax software to generate a tax report for you.

  4. Submit your tax return. If you are sending a paper return by post, you will need to do this by 31 October. Alternatively, you can complete your tax return online by the deadline on 31 January.

  5. Pay your taxes. Check your tax bill in your online account to find out what you owe (or you will receive a bill by post if you submitted a paper return). Pay your bill by 31 January.

Frequently Asked Questions

  1. Capital Gains Tax is the same across the UK. However, Scotland and Wales have the power to set their own rates for Income Tax. The Income Tax rates given in this guide currently apply to England, Wales, and Northern Ireland. Income Tax rates for Scotland can be found here.

  2. No. Capital Gains Tax only applies when you sell your crypto or otherwise dispose of it. This means you can buy crypto, hold onto it, and transfer it between your own wallets without paying any tax.

  3. UK exchanges and wallets are part of a data-sharing programme so HMRC has users’ KYC information and transaction data going back several years. This means there is a good chance that HMRC knows about your crypto. 

    Even if you use decentralised exchanges that don’t require KYC, HMRC could discover your activities once you transfer tokens to your exchange wallet or fiat to your bank account—so the safest course of action is to report all your gains accurately.

  4. This is the cost basis method that HMRC requires crypto holders to use to calculate their capital gains. It involves pooling the acquisition costs and allowable costs of each type of token (so if you hold BTC and ETH, you would have two separate pools, for example), and these costs would change each time you buy or sell some of those tokens. 

    The exceptions to the rule are when the same type of tokens are bought and sold on the same day or within the same 30 day period. You can read more about pooling here. The easiest way to apply this method is to use one of the tax software providers mentioned in this guide.

  5. There are a number of ways you can legally avoid or reduce taxes on crypto, the simplest being just to hold onto it. You can also sell your crypto more strategically by taking advantage of tax-free thresholds or selling it during a year when your income is lower.

    Crypto donations are tax-deductible and you don’t need to pay tax when you gift crypto to your spouse. You can also invest in a pension fund or a government scheme for tax relief. Using crypto tax software will help you spot unrealised losses and reduce your tax bill.

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