The rise in fame of cryptocurrencies over the past few years has caught the attention of governments all over the world, including the United Kingdom.
As digital assets like Bitcoin, Ethereum, and others continue to grow in popularity, it is important for UK people to understand how they affect their taxes.
We’ll talk about the most important parts of cryptocurrency taxes in the UK and what taxpayers need to know to follow the law in this blog.
An Introduction to Taxing Cryptocurrencies
To the UK’s tax authorities, cryptocurrencies are seen as property rather than money. In other words, trades involving cryptocurrencies are taxed under the rules of the capital gains tax (CGT), not the income tax.
People, companies, and even trustees have to pay CGT on the profit they make when they sell or give away an asset, and that includes cryptocurrencies.
Events that are taxed and duties to report
In the world of cryptocurrency trades, a taxable event can happen in a number of situations, such as:
Selling Cryptocurrency:
When you sell cryptocurrency for pounds sterling or any other standard currency, you have to pay capital gains tax on the difference between the price you paid and the value of the cryptocurrency.
Trading Cryptocurrencies:
It is also taxed to trade one cryptocurrency for another, like Bitcoin for Ethereum. How much money you make or lose from these kinds of deals depends on how much the cryptocurrencies were worth at the time of the deal.
Using Cryptocurrency to Buy Things:
If you buy things with cryptocurrency, you have to report any cash gain or loss.
Getting Cryptocurrency as Payment:
If someone pays you in cryptocurrency for goods or services, that payment is taxable income that you need to report.
Getting the Capital Gains Tax
To figure out CGT for cryptocurrency trades, you have to find the difference between the amount you got for selling the cryptocurrency and the amount you paid for buying it, plus any transaction fees.
The gain or loss that comes from this is then taxed at the current rates.
How much and how often you pay capital gains tax
There is a yearly CGT allowance in the UK that lets people make a certain amount of capital gains tax-free every tax year.
The CGT limit for this tax year is £12,300 (2023–24 tax year).
Gains over this amount are charged at different rates, which depend on how much the person gained and how much of their total taxable income they have.
Keeping records and following the rules
UK taxpayers who use cryptocurrency must keep accurate records of all their transactions in order to meet their tax responsibilities.
These records must include dates, amounts, values in pounds sterling, and any costs that were involved.
They need these records To correctly figure out capital gains and fill out tax forms.
Advice and Enforcement from HMRC
HM Revenue & Customs (HMRC), the UK’s tax body, has put out information on how to tax cryptocurrencies.
Which can help taxpayers understand what they need to do.
It’s very important for taxpayers to follow HMRC’s instructions and report their income correctly to avoid fines and possible checks.
In conclusion
Since cryptocurrencies are becoming more and more popular. It’s becoming more and more important to know how they affect your taxes.
UK taxpayers who deal in cryptocurrencies need to learn about the rules for cryptocurrency taxes.
These rules include taxable events, calculation methods, reporting requirements, and compliance requirements.
Taxpayers can deal with the complicated world of cryptocurrency taxes. While still following the law by staying informed and keeping accurate records.
