Koda Cryptocurrency – Do I Need To Pay Tax On My Crypto Profits?
Our crypto investment specialists are often asked if tax need to be paid on crypto profits. The answer to this question is always yes. To which they are asked when the tax needs to be paid and which tax it is that needs to be paid. So, in this blog post we thought we would go into a bit more detail to help you understand that tax does need to be paid on crypto profits and how it should be paid.
So, in December 2019 the guidance document on crypto assets for individuals was published by ~HM Revenue and Customs. It covered the exchange of tokens. Exchange tokens are intended to be used as a method of payment and encompasses crypto assets. In this guidance document, HMRC make it very clear that profits from buying and selling cryptocurrencies are subject to tax.
Broadly speaking, the rules for paying tax on crypto profits are as follows.
• Paying Tax on Cryptocurrency As An Individual
– Anyone that buys or sells crypto coins as an individual capacity is most likely subject to UK Capital Gains Tax (CGT) on any gains made.
– For those individuals trading in cryptocurrencies, buying and selling at a high frequency, Income Tax may be due on the profits as a trading income. HMRC take the view that is only in exceptional circumstances that it would expect individuals to buy and sell crypto assets with such frequency, level of organisations and sophistication that the activity amounts to a financial trade.
• Paying Tax on Cryptocurrency As Employment or Consultants
– Those receiving crypto assets as a non-cash payment employment, are subject to Income Tax and National Insurance contributions. These are the same implications that must be considered with cash payments too.
For the vast majority of individuals that invest in, buy or sell cryptocurrency they are more likely to be within the scope of CGT, rather than income tax. That said, the facts of each specific case will determine the position and tax type.
Want to know more about paying tax on crypto profits? Get in touch with our friendly team at [email protected] who will answer any crypto profit tax queries you have.