Many people believe that as there is no specific legislation or changes made to the tax code that cryptocurrencies are not liable for tax. This just isn’t the case. Currently when you sell or convert Bitcoin, you are liable for any Capital Gains Tax (CGT), it matters not if you convert to sterling or Ethereum (another cryptocurrency), you owe the tax man.
If you are personally mining bitcoin, and you need a fairly hefty computer setup to achieve this, HMRC will see this as a trade and will see you liable for Income Tax and National Insurance, with any profits reported to HMRC and then tax paid. Any expenses claimed to offset could only relate to the mining itself (that’s your computer, but not your energy bill).
The easiest way to think about cryptocurrencies and any profits that may come is that it’s just like realising the value of shares in a portfolio, generally any gains over the book cost ensure a CGT liability, unless offset in your return. But with the rapid rise in the value of bitcoin and other digital currencies it’s highly unlikely that many will have the losses elsewhere.
If you’re worried that you may have a tax burden coming your way, you should get in touch with your accountant. Preferably one who likes tax.
Find your local AIMS Accountant today.