Thanks to the Covid-19 pandemic, more people have taken up side hustles for added income streams. It’s becoming increasingly easy to invest in crypto assets such as Bitcoin and many first-time investors have made big profits. It’s no surprise that “The Crypto Hustle” became one of the side hustles that is gaining momentum in the UK, with recent estimates of around 2.3million Brits owning some form of crypto.
The big question is when and how should you be paying tax on your crypto investments? Whilst cryptocurrency is a relatively new asset, the regulations surrounding it are still being formed. TaxScouts, one of the UK’s most trusted personal tax platforms, is here to answer all the essential questions on how crypto is taxed – so crypto investors can overcome the dreadful tax season and make tax work for them like a true boss.
Do I have to pay taxes on money earned investing in Crypto?
Yes, you may well have to pay tax on your crypto earnings. What tax you pay depends on how much you make, when you make it and how you go about investing. There are two types of tax to be aware of. The main one to worry about as a crypto investor is Capital Gains Tax (CGT). The other is Income Tax but you’ll only be charged this if your crypto profits make up your full-time income.
When do I pay and how is it calculated?
If you’re holding crypto assets as a personal investment, you will owe tax based on the point at which you sell your holdings. HMRC define this as:
– Selling your crypto for money
– Exchanging between crypto and crypto (e.g. Bitcoin to Ether)
– Using crypto to exchange for goods and services eg. purchasing a car using crypto
From this point, you should work out what tax year you’re in and the amount of profit you have made. For instance, if you sell your crypto in May 2020 and your profits are over £12,300, you owe tax for your earnings in the 2020/21 tax year and you must pay this tax bill by 31st January 2021.
You’ll only pay Income Tax on your profits if crypto trading is your full-time job and it accounts for the majority of your earnings. At that point, you’ll register as self-employed and you will have to pay tax on your earnings over £1,000.
Are crypto losses deductible?
If you make a capital loss (you sell your crypto for less than you bought it), you can offset this against the gains. But if you do this, you will need to report the loss to HMRC. This can be done on your tax return. You can claim your losses up to 4 years from the end of the tax year that they occurred in.
Do I owe tax on Bitcoin if I hold it in crypto or only if I convert it to pounds?
When you hold your Bitcoin in a cryptocurrency wallet, you won’t be taxed on it. This is because HMRC don’t view it as a currency or as money. But if you exchange your crypto (either for another cryptocurrency or into a traditional currency) for a profit, you may be liable to pay tax on these gains. When we say traditional currency, this means Pounds (£), Dollars ($), Euros (€) etc.
How do NFTs work in terms of tax?
Now this really is the question. Unfortunately, HMRC are a little behind on this sort of thing (imagine that…) so no regulations have been strictly defined yet. What they do say is that “the treatment of cryptoassets continues to develop” so tax-wise, you’ll be billed like you would with any other crypto selling activity.
This year TaxScouts has launched a free e-book, Tax 101: Surviving the Hustle Economy, which will help you navigate the tax implications that come with your hustle, no matter what that hustle is.
Can you cash out crypto tax-free? How do I do a CGT tax return for crypto & shares? These are all questions that Chapter 4 of “Tax 101: Surviving the Hustle Economy” will answer to help Brits navigate the complicated tax implications that come with their crypto investments.
Head to www.taxscouts.com/tax101book for your free copy!
