Last Updated: 15 February 2024
Is it necessary for me to pay tax on my bitcoin/crypto gains, and if so, when and how?
The answer is yes, in a sentence.
HMRC published their guidance document on crypto-assets for individuals in December 2019, covering ‘exchange tokens’ (exchange tokens are intended to be utilized as a method of payment and include crypto assets like Bitcoin), and HMRC makes it clear that profits from buying and selling Bitcoin and other crypto-assets are subject to tax.
The following are the general rules:
Anyone buying and selling Bitcoin with a Robot in their own capacity is likely to be subject to UK Capital Gains Tax (CGT).
Income Tax may be due to earnings as trading income for people judged to be trading in cryptocurrencies (i.e. buying and selling with a high frequency). Individuals buying and selling crypto assets with such frequency, level of organization, and expertise that the conduct amounts to a financial trade, according to HMRC, would only be doing so in exceptional circumstances.
Just like with cash payments, persons who receive crypto assets as a non-cash payment for work must take into account Income Tax and National Insurance Contributions (NIC).
Rather than income tax, CGT is more likely to apply to the great majority of people who buy and sell Bitcoin or other crypto assets. The facts of each individual instance will determine the position.
- HMRC makes it plain that earnings made from the purchase and sale of Bitcoin and other crypto-assets are taxable.
Is it necessary for me to pay income tax and national insurance contributions if I get paid in Bitcoin?
When you receive crypto assets from your employer as payment for services rendered in the UK, it is apparent that this is considered income, and income tax and national insurance contributions will be due based on the amount received.
Crypto assets like Bitcoin, which have a tradable market, are referred to as “readily convertible assets.” This means that, similar to withholding taxes on a cash income; the employer has the major taxing responsibility.
This can cause administrative issues because the value of Bitcoin fluctuates, and some Bitcoin will require you to be sold to pay a cash equivalent to HMRC. Although some technology companies pay their staff in this manner, it is rarely more efficient than paying cash.
Suppose you are a self-employed consultant (not an employee) who receives Bitcoin for consulting work. In that case, you are entirely responsible for reporting and paying income tax and national insurance contributions (NIC) through your annual self-assessment tax return.
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