As the use of crypto assets continues to grow HM Revenue and Customs (HMRC) is emphasising the importance of avoiding potential penalties and checking whether individuals need to file a self assessment tax return for the 2022 to 2023 tax year.
The period in question is from 6 April 2022 up to the 5 April 2023 so if you have been involved with bitcoin or cryptocurrency within this timescale it’s worth checking your self assessment and capital gains tax criteria.
If you possess any crypto assets, it is essential to declare any income or gains that exceed the income tax free allowance on your tax return.
Your crypto assets may be liable for income tax in the following scenarios:
Receiving cryptoassets as part of employment, if they are held as part of a trade, or if you are engaged in activities related to crypto that generate income.
Selling or exchanging cryptoassets, which includes selling them for money, swapping one type of cryptoasset for another, using them to make purchases, gifting them to someone else, or donating them to charity.
On the 9 January 2024 Myrtle Lloyd, HMRC’s Director General for Customer Services, said:
“People sometimes forget that information about crypto-related income and gains need to be included in their tax return. Some people affected may not have had to do a tax return before, so it is important people check. With the Self Assessment deadline just a matter of weeks away, I am urging people not to put off completing it.
Help is at hand – you can access a wide range of resources and support online, just search ‘help with Self Assessment’ on GOV.UK.”
Crypto tax and capital gains tax
A gain made from crypto assets is treated as taxable after the AEA tax free threshold has been breached.
You are only required to pay capital gains tax for the total profits that exceed your tax free allowance, which is referred to as the annual exempt amount.
For the 22/23 tax year the annual exempt amount for CGT purposes is worth £6000 per person.
If you have a gain over the AEA HMRC expects you declare the gain and pay the appropriate level of capital gains tax.
In order to determine if capital gains tax is applicable you need to calculate the gain for each transaction separately.
Typically the gain is calculated as the difference between the purchase price and the selling price of the crypto asset. The method of calculating the gain differs if tokens are sold within 30 days of purchase.
For any cryptocurrency acquired for free the market value should be used when making your capital gains tax calculations.
How to pay CGT on bitcoin and crypto assets
HMRC has set up a “Real Time” capital gains tax service to assist individuals in reporting the gain made on bitcoin and crypto assets that are subject to CGT.
Using the real time capital gains tax service eliminates the need for individuals who wouldn’t otherwise need to file a tax return to register for self assessment.
Crypto tax self assessment:
If you meet self assessment criteria and don’t already complete a tax return you can register with HMRC for self assessment to declare your crypto gains.
For self assessment users who already complete a tax return your crypto gains for the 22/23 tax year should be included in the capital gains summary SA108 of your 22/23 tax return.
Avoiding CGT should be avoided
Like all tax trying to avoid paying it is not recommended and it’s the same deal with paying CGT on profits made from digital assests, cryptocurrencies and bitcoin.
HMRC is provided with data from crypto exchanges like Coinbase and Binance and will take action against individuals who do not accurately report their profits.
Neglecting to report qualifying capital gains from the digital world can lead to significant penalties from HMRC which can be avoided by declaring and paying what you owe voluntarily.
