We have previously mentioned that HMRC were in the process of updating their guidance for individuals on cryptoassets. They have now published guidance on how individuals possessing cryptoassets may be taxed (they have yet to publish detailed guidance in respect of the taxation of cryptoasset transactions involving businesses and companies).
In particular, the guidance covers the following:
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What cryptoassets are
Three types of cryptoassets are identified: exchange, utility and security tokens. HMRC does not consider cryptoassets to be currency or money and they do not consider the buying and selling of cryptoassets to be the same as gambling.
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Income tax
HMRC will tax cryptoassets based on the activity of an individual holder, and so if they are carrying on a trade, then income tax will be applied to any trading profits arising.
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Capital gains tax
HMRC have stated that in the majority of cases, the buying and selling of cryptoassets by an individual will be seen as investment activity and so CGT will be due on any gains generated by the disposal of cryptoassets.
The guidance sets out what constitutes a disposal, which includes:
- selling cryptoassets for money;
- exchanging cryptoassets for a different type of cryptoasset;
- using cryptoassets to pay for goods or services; or
- giving away cryptoassets to another person.
Cryptocurrency investors who trade regularly between different cryptocurrencies may not have realised that every such trade represented a disposal that should be reported to HMRC. As reporting these disposals requires the investor to try to ascertain the sterling equivalent of their cryptocurrencies sold and acquired, this may prove difficult where less common cryptocurrencies are involved.
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Cryptoassets received as earnings
HMRC will treat cryptoassets received as employment income to amount to ‘money’s worth’ which will be subject to income tax and national insurance contributions on the value of the asset received.
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Record keeping
HMRC expect individuals to keep separate records in respect of each cryptoasset transaction.
