Declaring Digital Currency and Crypto Gains on Your Tax Return
As the world of digital currency and cryptocurrency continues to grow, it's essential to understand the tax implications of your investments.
If you've received gains from digital currencies, you need to declare these on your tax return.
HMRC requires that any gains or income from digital currencies be declared on your tax return.
This includes cryptocurrencies like Bitcoin, Ethereum, and other digital assets. Failing to declare these gains can result in penalties and interest charges.
What Information Do You Need?
As your accountant, I will need the following information to accurately report your digital currency gains:
The obvious stuff like: Your name, address, email address, and contact telephone number, UTR and NI Number.
Transaction Details: The number of crypto transactions, including dates and amounts.
Proceeds or Income: The total amount of proceeds or income from crypto transactions.
Acquisition Costs: The costs incurred to acquire the cryptoassets.
Gains or Profit: The total gains or profit made from the transactions.
Crypto Exchanges Used: Details of any crypto exchanges where transactions were made.
Disposal Details: Information on the number of cryptoassets disposed of.
Cryptoasset Calculators: If you used any commercial calculators for your crypto transactions, please provide details.
Keeping accurate records of your crypto transactions is crucial.
Here are some tips to help you stay organized:
Tools like Koinly can sync with your crypto wallets and automatically calculate your gains, losses, and income.
Keep a log of all transactions, including dates, amounts, and the purpose of each transaction.
Regularly update your records to ensure accuracy and completeness.
Ensure that all records are backed up securely to prevent data loss.
Crypto as an Asset vs. Trading
When you hold cryptocurrency as an asset, any gains you make from selling, swapping, or spending your crypto are subject to Capital Gains Tax (CGT). This means you need to report the disposal of your cryptoassets and calculate the gain or loss based on the difference between the acquisition cost and the disposal proceeds.
Here is a good manual >> Check if you need to pay tax when you sell cryptoassets - GOV.UK
If your activities with crypto are considered trading, then Income Tax will apply instead of CGT. HMRC considers several factors to determine if your crypto activities amount to trading, such as the frequency, level of organization, and sophistication of your transactions. If deemed a trade, profits (or losses) from these activities will be subject to Income Tax.
Here is a good manual >> CRYPTO20250 - Cryptoassets for individuals: what is trading - HMRC internal manual - GOV.UK
Consequences of Non-Compliance
If HMRC discovers that you have not declared your crypto gains, you could face significant penalties and interest charges. The severity of these penalties depends on the nature of the non-compliance. If you took reasonable care but still underpaid, you may only need to pay what you owe for the past four years. If you did not take care, you could be liable for up to six years of unpaid taxes. If HMRC determines that you deliberately avoided paying taxes, you could be liable for up to 20 years of unpaid taxes.
Declaring your digital currency and crypto gains is not just a legal requirement but also a crucial step in maintaining transparent and accurate financial records. By providing the necessary information and keeping detailed records, you can ensure compliance with HMRC regulations and avoid potential penalties.
If you have any questions or need assistance with your tax return, please do not hesitate to contact me. Let's work together to ensure your financial affairs are in order.