Accounting for crypto-currency trading requires adherence to the guidelines provided by HMRC.
Here are some key points to consider crypto trading:
- Classification: Cryptocurrencies are typically accounted for as assets. However, the specific classification may depend on the nature of your activities. As individuals, HMRC generally treats cryptocurrency trading as speculative in nature, while when for businesses, it may be considered trading or investing.
- Record-Keeping: It is essential to maintain detailed records of all cryptocurrency transactions, including dates, amounts, exchange rates, transaction fees, and any other relevant information. These records will help you calculate gains, losses, and any tax liabilities accurately.
- Valuation: Cryptocurrency values can be volatile, so it is important to determine a consistent method for valuing your holdings. Generally, the HMRC accepts valuations based on reputable exchanges or cryptocurrency price indices on the day of the transaction.
- Capital Gains Tax (CGT): For individuals, profits from cryptocurrency trading are subject to CGT. If the total gains from all your disposals in a tax year are below the annual CGT exemption threshold, no tax is due. However, if your gains exceed the threshold, then report and pay CGT on the taxable amount.
- Trading as a Sole Trader Business: If you are trading cryptocurrencies as a business, you may be liable to pay income tax on your trading profits instead of CGT. In such cases, you may also need to consider other tax obligations like VAT.
- Deductible Expenses: When trading cryptocurrencies as a business, you can deduct allowable expenses such as transaction fees, exchange fees, and professional fees from your trading profits. However, personal expenses unrelated to the business cannot be claimed.
- Reporting Obligations: If you are trading cryptocurrencies as a business, you must maintain proper accounting records and include the trading activity in your annual tax return. Individuals who make gains above the CGT exemption threshold should also report the transactions on their tax return.
It is important to note that as crypto is a relatively new concept that tax regulations are subject to change, consulting with a qualified accountant or tax advisor who is familiar with crypto taxation to ensure compliance is recommended.
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