How to settle tax with cryptocurrencies in the UK

Cryptocurrencies in a very short time have grown into the most dynamic market in the world, gaining crowds of investors and traders. Today we will take a look at how cryptocurrencies income taxation looks like in the case of people living in the UK


What does the tax office have to say about this?

HMRC still does not seem to be very interested in cryptocurrencies income and from 2014 there have been no changes in the guidelines. These guidelines are not very precise as to why many people who earn their income in this market are still not sure whether they should pay taxes and if so, what kind of taxes. The short report from 2014 deals with the issues of VAT, income taxes (physical and legal persons), capital gains tax (Capital Gains Tax) in general. The Office itself has admitted that it will publish further guidelines, as this is a very fast-growing area. However, nothing has been published since then. It was also added that crypto-currency is very unique and cannot be directly related to comparisons with other investment or payment activities.


In practice, this means that tax issues will most likely be dealt with on a case-by-case basis and all circumstances will be examined on a case-by-case basis.

Three options

From the HMRC point of view, buying and selling cryptocurrencies can be tax eligible in three ways:

  • Short-term speculation – exactly the same as in the case of gambling and bookmaking income, i.e. total non-taxation.
  • Regular trading – i.e. buying and selling with the intention of generating a profit and usually with numerous and regular transactions within a short period of time. This is how it qualifies for income tax
  • Occasional investments – i.e. not very frequent and rather long-term crypto purchases are with the intention of selling them in the long term. Here we would have to deal with a tax on capital gains

HMRC will most likely soon be fine-tuning its legislation because it has realised the huge potential damage caused by the fact that most people have exploited the ‘loophole’ and considered such revenue as gambling without paying any taxes.

Guidance 1

It is too early to establish this precisely, but the HMRC is treating crypto-currency more like a foreign currency, so if we want to examine the rules ourselves in terms of paragraph 2, we need to start by regulating precisely such currencies.

Guideline 2

As for option 3, if you have not used it before, remember that you also have an amount free of capital gains and it is the best known personal allowance in the UK, i.e. £11700 in the current year 2018/2019.

Cryptocurrencies mining

Mining’ seems to be a bit different, but HMRC initially considered it as a trading activity, as in the case of buy/sell, where we generate profit/loss.

However, digging is currently excluded from VAT and those who own excavators will not be ‘included’ in the VAT rules even if they sell Bitcoin for a fiduciary currency.

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