Accounting for Crypto

An Alternative Currency

Cryptocurrency— often referred to as ‘crypro’—  is a digital or virtual currency that uses cryptography for security.  

These take the form of decentralized networks based on blockchain technology (a distributed ledger enforced by a disparate network of computers) that can be used to purchase goods and services. 

Bitcoin was the first cryptocurrency to arise back in 2009, with many alternative coins arising since.

This growth in popularity has raised the profile of cryptocurrency investment with HMRC, who are taking steps to ensure that all individuals and businesses are paying the correct amount of UK tax on their cryptocurrency and other cryptoassets.  

The tax implications attached to crypto tend to be complex and poorly understood. As such, the need for cryptocurrency accountants is rising by the day.  

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Crypto Accountants

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As a business, you need to have confidence that your accountant understands the sector in which you operate. Traditional accounting simply will not do.  

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Experts in all things crypto-related, the team at Gow and Partners offer a wide range of services to help you excel.  

From advice on the domestic and international structuring of your business and issues around remuneration in crypto, to the usual accounts and tax compliance services you would expect, we have you covered.  

We also provide you with the means to keep track of your transactions easily, while ensuring that all your taxes are paid properly, helping you better manage your assets.

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Cryptocurrency – Tax  

The main issue with crypto tax is that there is yet to be any specific legislation, meaning that profits are taxed in different ways, depending on your actions and circumstances.  

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Capital Gains Tax

Buying and selling cryptoassets is usually seen as an investment activity, and any gains made are potentially subject to capital gains tax. There is an annual exemption, but if this is exceeded (including the selling of other assets such as shares or property), tax will need to be paid.

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Liability

Capital gains tax liability doesn’t just arise when you sell a cryptoasset. It can also arise when cryptoassets are exchanged. For example, from Bitcoin to Ethereum or when they are used to pay for goods and services. This calculation can be complicated, particularly if you have other assets that you are also disposing of during the tax year. Our team can help accurately calculate your gains, as well as preparing the tax return.  

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Income Tax

Income tax and national insurance become liable on the value of the asset when certain criteria are met. This includes things like remuneration from employers, crytoasset trading, mining and even occasionally airdrops.

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Trading ‍

If HMRC considers your activities to be a trade, rather than investing, then you will be taxed as if you are running a business and income tax will be due. There are a number of factors that influence this decision, and it can be complicated. It is therefore important that professional advice is sought from specialist cryptocurrency accountants.

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Mining

When receiving cryptoassets as rewards for mining it will depend on the level of reward, how active you are and from whom you are receiving the assets whether you fall into taxable trade and are therefore liable for income tax. Again, this is a complex area and advice should be sought at an early opportunity. On top of this, if cryptoassets are kept and then disposed of later these are also then liable for capital gains tax (if gain is above the allowance for the tax year). Again, careful tax planning is advised – and we can help.

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Airdrops

These are not usually subject to income tax where the asset has been dropped into your wallet for a personal capacity. However, where this has been done in exchange for a service (or a service that will be performed) then it can fall into income tax rules – take advice

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Inheritance Tax

Crypto assets are in the same asset class as property for inheritance tax purposes and are therefore subject to inheritance tax and effective tax planning should be undertaken to ensure your tax affairs are in order.

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Staking

If the activity does not amount to a trade, the pound sterling value at the time of receipt of any tokens awarded will be taxable as income (miscellaneous income) with any appropriate expenses reducing the amount chargeable. Any future disposal of rewarded assets are then liable to Capital Gains Tax.

Our crypto tax specialists will help you structure and manage your business in the most tax efficient way possible, so you’re not paying more than is necessary.

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Cryptocurrency – VAT

The buying and selling of Cryptocurrency is outside the scope of VAT, but services connected with cryptocurrencies will be liable. For example, purchasing goods with cryptocurrency or undertaking consultancy.  

HMRC have also clarified that when a transaction is settled in a cryptocurrency, this does not mean that the underlying supply is not subject to VAT. Thus, buying goods and services using Bitcoin doesn’t mean VAT shouldn’t be charged in the normal way. As with any other transaction, the pound value is the equivalent of the market value of the cryptocurrency at the time of the transaction.

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Helping you Strategize  

Transfer assets to your Spouse or Civil Partner: transfer between spouses is currently exempt from CGT, meaning assets can be transferred between husband and wife or civil partners so that both annual CGT allowances are used. This effectively doubles the CGT allowance for married couples and civil partners, providing that the transfer is a genuine gift.

Make use of losses: in order to reduce the amount of gain subject to tax, gains and losses established in the same tax year must be offset against each other. Losses must be registered with HMRC within four years from the end of the tax year in which the loss has occurred. You’re also allowed to deduct certain costs involved with buying and selling (incidental costs of acquisition and disposal) Crypto Assets from your gain when working out your CGT liability. These include transfer fee, exchange fees, and fees for professional services such as lawyers and accountants relating to the buying and selling the crypto

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Reliable Crypto Tax Reports with Koinly  

Koinly is a must for any crypto investor/owner, and here’s why:  

• Generates accurate, reliable tax repots in under 20 minutes.  

• Has a crypto tax calculator you'll enjoy using.
• Simplifies tax by allowing you to import multiple wallets.
• All tax documents are HMRC-compliant.
• Allows you to track cryptoassets with ease.  
• Lets you view your total holdings and portfolio growth over time

• Actual ROI and invested fiat— see how much you have invested in your coins.  
• Get an overview of your mining, staking, lending and other crypto income.
• Easily see how much you are up/down and view realized/unrealized capital gains.
• All your transactions presented in one place, making it easy to fix issues  

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Let us Help You

Book your 30 minute discovery call today— enjoy a relaxed, no-obligation chat with one of our qualified accounting advisors. We can assess your situation and determine how to best serve and add value to your business.  

Alternatively, you can send us a message with any queries (big or small), and one of our team members will get back to you promptly.  

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