An individual may contend that loss-making activities amount to a trade so that relief for trading losses can be offset against the individual’s other income, often referred to as ‘sideways loss relief’). similarly, an individual may contend that profit making activities amount to an investment activities so capital gain tax and pay lower tax. HMRC confirms that the question of whether cryptocurrency activities amount to trading is a question of fact and should be assessed in the same way as disposals of shares, securities and other financial products, by reference to the “badges of trade” HMRC indicates that the buying and selling of cryptoassets will normally amount to investment activity, and only in “exceptional circumstances” would it expect individuals to buy and sell cryptoassets with such frequency, level of organization and sophistication that the activity amounts to a trade. Unfortunately, there is very little guidance on the meaning of ‘trade’ in the tax legislation. A trade is simply defined (in ITA 2007, s 989) as including ‘any venture in the nature of trade’. The lack of statutory guidance on the meaning of ‘trade’ has resulted in extensive case law over the years. The ‘badges of trade’ can sometimes be helpful. These were first established by the Royal Commission for the Taxation of Profits and Income in 1955, using previous case law about what constitutes a trade. Subsequently, in Marson v Morton Ch D 1986, 59 TC 381, a total of nine badges were identified. – profit-seeking motive; – the nature of the asset; – existence of similar trading transactions or interests; – changes to the asset; – the way the sale was carried out; – the source of finance; – interval of time between purchase and sale; and – method of acquisition. Is it commercial? Even if it is accepted that there is a trade, HMRC will sometimes argue that the trade is not being undertaken on a commercial basis, and/or with a view to the realization of profits of the trade. Sideways loss relief is not available in those circumstances (ITA 2007, s 66). With the above in mind, it could be argued that the badges of trade which may be present are not sufficiently compelling to constitute “exceptional circumstances” which would overturn HMRC’s starting point that cryptocurrency transactions amount to investment activity.

HMRC requires you to keep detailed records of all your cryptocurrency transactions. This includes dates of transactions, the value in GBP at the time of the transaction, the amount of cryptocurrency involved, transaction fees, and the purpose of the transaction (e.g., sale, trade, or payment for services). Maintaining accurate records is crucial for calculating capital gains and losses and ensuring compliance.

Whether you decide to run your cryptocurrency investment activities as an individual or a limited company, each structure comes with its own unique set of advantages and disadvantages. But the option that’s right for you depends on the type of cryptocurrency activities you undertake. It’s important not to rush into any decision. You need the right legal structure to optimize the tax. The most popular legal structures in the UK are sole trader and limited company. Working out what option is best for you can be daunting. Recommend seeking professional advice to select the structure best fit for you considering your circumstances.

Income Tax is charged on most types of income, such as wages and salary from jobs, your profits if you run a business, pensions, rents you receive if you’re a landlord, and interest and dividends from savings and investments. If your cryptocurrency activities deem to be trading activities (cryptocurrency business) or income generating activities such as mining, staking, or lending then you pay income tax on your cryptocurrency income.

Tax rate for cryptocurrency activities deem to be trading or income generating actives. Tax rate varies for each tax year. Following are the rates for FY2019-20; Band Personal Allowance Up to £12,500 0% Basic rate £12,501 to £50,000 20% Higher rate £50,001 to £150,000 40% Additional rate over £150,000 45% You also need to pay national insurance on your cryptocurrency trading profits and may also be liable to pay on account payment (advance payment towards next tax year liability)

Capital Gains Tax (CGT) is a tax by the UK government on the selling assets which include property, tangible and intangible) investments. This tax is split into rate bands depend of the type of investment. Residential property -two marginal rates of 18% and 28% depending on one’s annual income. Other assets including cryptocurrency- two marginal rates of 10% and 20% depending on one’s annual income. charge to capital gain tax will arise when there is a chargeable disposal of a chargeable assets by a chargeable personal. Whenever you sell or gift UK cryptocurrency, you need to consider how the capital gains tax rules apply to the sale or gift.

Chargeable person – Chargeable person could be an individual or company. If company make chargeable gain from cryptocurrency, it does not pay capital gain tax instead the company pays corporation tax. UK resident individual are chargeable for capital gain tax. Individual who are not resident in UK do not pay capital gain tax even if they sell cryptocurrency using exchanges situated in UK. Residency status of the and individual will be determined based on Statutory Residency Tests. If and individual spent more than 183 days in UK during a Tax year automatically considered as tax resident. Anyone who is UK resident for UK tax purposes will fall within the capital gains tax regime when cryptocurrency is disposed. Special rules, apply if you dispose of any cryptocurrency after moving abroad and subsequently return to the UK within five year period. If you are unsure of your UK residency position, you should seek advice from a tax adviser or consult your local tax office.

• selling cryptocurrency for fiat currency (money) Eg. BTC to GBP

• exchanging cryptocurrency for a different type of cryptocurrency e.g BTC to ETH

• using cryptocurrency to pay for goods or services

• Gift or charitable donation of cryptocurrency to another person A chargeable disposal occurs on the date of the contract.

Transfer of cryptocurrency on the death are exempt disposal

Not only when you sell cryptocurrency but also when you transfer cryptocurrency token to another token it is also considered as disposal or taxable event for CGT purpose. E,g BTC to GBP or BTC to ETH or ETH to USDT E.g buyr BTC at £10,000 and when you exchange BTC to ETH when the BTC price was £15,000. You have a changeable gain of £5000 on BTC disposal. Cost of the ETH is £15,000 if subsequently you sold the ETH when the price was £13,000. You have a loss of £2000 on ETH sale.

Buying cryptocurrency is not a taxable event you only pay CGT on chargeable disposals or taxable event such as selling cryptocurrency to fiat currency e.g BTC to GBP or exchange a crypto token to another crypto token. E.g BTC to ETH If you bought Cryptocurrency and hold it is not considered as chargeable disposal or taxable event.

When considering the location of an intangible asset, generally look at the nature of the asset to find a suitable comparison. For cryptocurrency location will be based on residency of the beneficial owner. So as a UK resident owning or trading in cryptocurrency based on foreign exchange will be treated as UK assets. Similarly, for non-UK resident any cryptocurrency trades or wallets based in UK based exchange will be considered as non-UK assets.

The amount of CGT payable is based on the profit you make on an investment. The profit calculated by subtracting the sale price from the purchase price and then deducting the associated costs to establishing what is termed as the “Gain”. Once you have calculated the amount of gain, you then deduct your tax free allowance known as the “Annual Exempt Amount” ( £12,000 for FY2019-20) and are left with the “Taxable Gain”. You will then be liable for CGT on the entire Taxable Gain. Cost of acquisition and associated expenses cost of the purchase of token. Incidental cost of disposal, exchange fee, bank fee, lawyers and accountants’ fees etc. allowable cost when calculating your gain from crypto investment

An individual is entitled to an annual except amount for each tax year. CGT annual allowance is similar to the personal allowance for income tax . The Following are the allowance rate. FY2018-19 , £11,600 FY2019-20 , £12,000 Fy2020-21 , £12.300 Once you have calculated the position for each sale or gift, you then need to add all your gains and losses made in the tax year together and offset any carried forward capital losses from previous tax years to calculate your net chargeable gains. If your net chargeable gains exceed your annual exemption, capital gains tax will be due at the appropriate rate of tax. If your net gain is below the personal allowance, then you will not pay any tax.

No. If you do not use all of your annual exemption in one tax year, it cannot be carried forward to a later tax year and will be lost. It is not possible to transfer any unused allowance to anyone else, including your spouse or civil partner. If you don’t use it during the tax period, you will lose the allowance.

Tax year is from 6th April to 5th April . Fy2019-20 ( 6th April 2019 to 5th April 2020) Tax is due by 31 January following the end of the tax year of the disposals.

You need to consider each sale or gift of chargeable cryptocurrency disposal in the tax year separately. For each disposal, you need to undertake the following calculation: Net proceeds – Less: acquisition costs and allowable expenditure = Chargeable gain/loss If the difference between your net proceeds and the allowable expenditure is positive, you have made a gain on the shares. If the difference is negative, you have incurred a loss and you will need to apply the loss relief rules below

When you have sold the cryptocurrency the open on market, the net proceeds are the amount received, less any fee relating to the costs on the sale e.g exchange fee , bank fee. Special rules apply when you gift the shares (see below). Your acquisition cost is: • cryptocurrency purchased on the open market – the amount you paid, including any exchange or currency fee; • cryptocurrency received as a gift – the market value on the date of the gift, even if you have paid some money towards the crypto;

Valuation of the Cryptocurrency bought at different prices, date and exchange the cost basis will be determined using the share matching rule (same principle used for the valuation of the cost for shares disposal) Any cryptocurrency token disposed of must be matched against same cryptocurrency token purchased in a particular order. Matching rule allow to decide which crypto have been sold and so work out the allowable cost on disposal should be. Cryptocurrency disposed will be matched against same token class in the following order: 1. Any cryptocurrency purchased on the same day; 2. Any cryptocurrency purchased within the next 30 days; Bed and breakfast rule 3. Any other shares held in your section 104 pool. Bed and breakfast rule stopes crypto being sold to crystalize a capital gain or loss , usually to use CGT exempt amount, and then being repurchased a day or so later

If the purchase price and any incidental costs are greater than the amount you received on the sale, you have incurred a capital loss which can be offset against other chargeable gains. You must offset a current year loss against other gains made in the current year, even if this means that you do not have sufficient gains to utilise the annual exemption in full.

A taxpayer will set capital losses against capital gain. Capital losses reduce gains. Capital losses must be set off against capital gains in the same tax year. This is automatic. If your loss is greater than your chargeable gains in the current year, you can carry the excess loss forward to set against gains in future tax years.

When you carry forward your loss to future years, you can use this to reduce your chargeable gains down to the annual exemption in that year and carry any remaining balance forward.

The significant of individual being connected person, is that all transactions between them take place at market value for CGT purpose. Only exception to this is transactions between spouses.

Each Cryptocurrency token acquired other than the those acquired on the same day or within the next 30days) as pool, which grows as new tokens are acquired and shrinks as they are sold. For the calculation of the pool average cost, need to keep track of 1. No of tokens 2. Cost of the tokan e.g buy 10btc at £1000 each on 01/01/2016 total cost £10,000 10 btc at £2000 20/05/2016 total cost 20,000 Pool average cost per BTC is 1,500 ( £30,000 /20 BTC)

Just as important as understanding when you incur a tax liability, it’s important to know when you do not. Following types of transactions are not taxable when dealing with bitcoin and cryptocurrency:

• Giving cryptocurrency as a gift to your spouse is not a taxable event (your spouse inherits the cost as transfer is treated on no loss no gain basis)

• A wallet-to-wallet transfer is not a taxable event (you can transfer between exchanges or wallets without realizing capital gains and losses.

• Buying cryptocurrency with Fait currency (money) is not a taxable event. You don’t realize gains until you trade, use, or sell your crypto An example Let’s say again I purchased 0.5 Bitcoin for £1,000 on Coinbase.

After purchasing, I send this Bitcoin to my ledger wallet to store. I would not owe any tax at this point as sending and depositing cryptocurrency is not taxable. I have not incurred a tax liability in this case.

Transfer of assets between husband and wife or civil partners are taking place at no gain and no loss. This mean that spouses can transfer cryptocurrency freely between them without incurring a charge for CGT. Since transfer between spouses/civil partners are on a no gain no loss basis. It may be beneficial to transfer the whole or part of th cryptocurrency portfolio to spouse /civil partner with an unused annual CGT exempt amount or with taxable income below the basic rate limit.

Keeping up changes and the amount of tax you are expected to pay on your cryptocurrency, can be overwhelming. With all financial commitments, if you don’t pay the correct amount of tax there may be heavy penalties for you and your business. As with all taxes, if you’re avoiding payment or not paying your share, HMRC are in their rights to contact you and carry out compliance checks. It’s therefore extremely important to make sure you’re paying what you owe. If you have any gain or income during a tax period, you need to report these in your tax return and pay the tax within the appropriate due date. If you have any undeclared gain relating to prior tax period, own up to it before HMRC prompt you to make a disclosure. Promoted disclosure will have higher penalty than voluntary disclosure. You can report these either by amending the previsulay submitted tax return or report these using HMRC digital disclosure facility.

Tax and cryptocurrency are as complex as it sounds. It’s therefore advisable to seek professional help to take care of your tax requirements. Accountants and tax advisors who normally love to work on tax matters relating to individual, businesses, property and other tax matters find it difficult to comprehend the cryptocurrency tax. Essentially even the most straightforward cryptocurrency taxes are going to be significantly more complex than other taxes. Specialist Cryptocurrency accountants have significant experience navigating each step of the complex process (which means you do not have to spend the time and energy figuring out how to navigate it yourself). They will not just help you make the most out of your investment but will also help you protect yourself against non-compliance in the UK tax system which is extremely punitive and complex. You can save yourself from countless pitfalls if you have an expert opinion backing all your decisions. This is why you need experts who have the relevant experience working out the tax on your cryptocurrency and can offer advice and support on filing and paying taxes on your Crypto investment.

Transfer of assets between husband and wife or civil partners are taking place at no gain and no loss. This mean that spouses can transfer cryptocurrency freely between them without incurring a charge for CGT. Since transfer between spouses/civil partners are on a no gain no loss basis. It may be beneficial to transfer the whole or part of th cryptocurrency portfolio to spouse /civil partner with an unused annual CGT exempt amount or with taxable income below the basic rate limit.

If you own cryptocurrency which have become worthless since you acquired them, you can make a negligible value claim. The effect of the claim is to treat the cryptocurrency as having been disposed of for nil disposal proceeds and reacquired with no acquisition cost. If the cryptocurrency tokens recover in value later on, you will be taxed on any gain over the new nil acquisition cost when you finally dispose of the cryptocurrency. You can elect to apply the negligible value claim in the current tax year or either of the two tax years prior to the year of the claim. A loss on an asset which has been acquired through a no gain/no loss transaction (for example for transfers between husband and wife TCGA92 s58) may qualify, provided the person from whom the asset was acquired previously owned the asset at a non-negligible value. So if you make a negligible value claim during 2019/20, any loss resulting from the deemed disposal will arise in 209/20 unless you make a claim for the loss to be treated as if you had disposed of the cryptocurrency at a time falling in 2018/19 or 2019/20.

If you sell cryptocurrency which you owned before you left the UK while you are living abroad, capital gains tax will be chargeable on any gains made on the sale in the tax year that you return to the UK if all of the following rules apply:

• You were resident in the UK for tax purposes for at least 4 of the 7 tax years prior to your departure from the UK;

• At the date of sale, you were either: – Not resident in the UK for UK tax purposes; or – Dual resident i.e. the UK was not your sole residence for UK tax purposes; and

• You resume sole residence in the UK for tax purposes within 5 tax years of your departure from the UK.

You may be able to claim double taxation relief if you have paid overseas tax on the sale of your cryptocurrency. There is currently no charge to capital gains tax if you dispose of any crypto which you have both acquired and disposed of while you are not resident in the UK for tax purposes.

As far as record keeping is concerned, the HMRC correctly states that many exchanges do not keep detailed information about crypto transactions and the onus of maintaining these transactions accurately rests with the taxpayer. These details include:

• the type of crypto asset

• date of the transaction

• whether the crypto assets were bought or sold

• the number of units involved

• value of the transaction in pound sterling

• cumulative total of the investment units held

• bank statements and wallet addresses, as these might be needed for an enquiry or review You should ensure you download reports regularly from your exchanges as they can lose your data or just delete it permanently after a certain period of data.