The deadline for submitting tax returns in the UK is Jan. 31, 2019. If you hold investments in bitcoin or any other cryptocurrency it is important to be aware you may owe corporation tax, income tax, or capital gains tax depending on your activities. The U.K.’s HM Revenue and Customs (HMRC) has shared its most recent guidelines.
Also read: Cryptocurrency and Taxes: How to Use 2018’s Losses to Your Advantage
Get Ready, Set, File
The last 18 months have been quite a rollercoaster ride for cryptocurrency investors. There could be another dip ahead as the taxman will want his share of any profits made during the past tax year. Recently, there have been numerous reports emerging of tax authorities clamping down and going after cryptocurrency traders.
In the U.K., self-assessment is a system the HMRC uses to collect tax. So if you’re a sole trader or in a business partnership based in Britain and have made any gains investing in cryptocurrencies or have been sold an investment giving you exposure to digital assets, you may owe tax. Failure to report crypto gains could amount to tax evasion.
HMRC’s Guidelines on Crypto
Calculating taxes can be a complex and stressful process. Over the last couple of years, there has been a lack of clarity when it comes to bitcoin taxation. The latest taxation guidelines around cryptocurrencies from the HMRC aim to simplify the process of reporting taxable crypto assets.
A spokesperson from HMRC explained: “Where an asset including bitcoin is held as an investment as opposed to being working capital in a trading activity – the presumption is that any profit or gain on its disposal will be charged to capital gains tax.”
According to HMRC, a calculation is made for each “disposal” or transaction to establish where the disposal gave rise to a gain or a loss. At the end of the tax year, which runs from April 5, 2017 to April 5, 2018, the taxpayer must add together all of their chargeable gains and then subtract any in-year allowable losses. Any losses will be looked at on a case-by-case basis.
According to HMRC:
Whether any profit or gain is chargeable or any loss is allowable will be looked at on a case-by-case basis taking into account the specific facts. Each case will be considered on the basis of its own individual facts and circumstances.
Keep Records of Every Single Transaction
HMRC has explained that “if the overall result is a gain then capital gains tax will be due on this, after deducting any allowable losses brought forward from previous tax years and deduction of the annual exempt amount. If the overall result is an allowable loss then this can be carried forward to future tax years to set against chargeable gains.”
Another issue which arises is what happens if an individual has sold from one cryptocurrency to another, say from BCH to ETH. Would they only be taxed once they convert this crypto into pounds?
A HMRC spokesperson explained: “The tax treatment would depend on the particular circumstances, but where capital gains tax is in point the chargeable gain or allowable loss will arise when a cryptocurrency is sold or otherwise disposed of (example by exchange) for money or money’s worth … swapping bitcoin for ethereum or indeed sterling will involve a disposal of the bitcoin and any gain or loss on the bitcoin will accrue.”
HMRC has published a guide aimed at bitcoin miners, traders, exchanges, payment processors and service providers, to help shed light on the crypto taxation process.
Disclaimer: This editorial is intended for informational purposes only. Bitcoin.com and the author are not experts on taxes and cannot be held responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by following the information in this article.
What do you think of HMRC’s guidelines as detailed above? Let us know in the comments section below.
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