Session 2: What Crypto Activity do I pay tax on in the UK?
REX is proud to announce a partnership with Charlton Baker, Crypto Tax experts from the UK. While this series of 5 articles specifically relates to UK tax law, parallels can be drawn with other jurisdictions. We believe it is important that investors are informed and that we have the tools and alliances to help us navigate complex tax regulations.
Welcome to part 2 of 5 of our UK Tax Series.
For easy reference check out the other parts below:
Part 1: Do I need to pay Taxes on my Crypto Profits in the UK?
Part 2: What Crypto Activity do I pay tax on in the UK?
Parts 3 to 5 coming soon!
Session 2 — What crypto activity do I pay tax on in the UK?
In Session 1, we talked about the numerous issues surrounding the taxation of crypto in the UK.
Whilst there is a long way to go to align the magic of new technologies with new tax laws, for the time being, every crypto investor has a responsibility to pay the right amount of tax at the right time.
To kick things off, there are three main taxes that you might need to pay on your crypto holdings and activity.
Number 1 — Capital gains tax
Number 2 — Income tax
Number 3 — Inheritance tax
If you trade as a company, such as a family investment company you will be required to pay Corporation tax. But let’s focus on personal crypto activity for now.
So what crypto activity do I pay tax on in the UK?
The evolution of crypto protocols and wider audience engagement means HMRC are struggling to keep up to date with their guidance, but essentially, you should expect to be taxed on the majority of crypto types, transactions and activity.
HMRC does not treat crypto as currency or money but rather like to look at how you deal with your crypto and the transactions you carry out, which means there’s quite a lot to consider, feeling like you need a hat of magic tricks at times to produce what’s needed.
Your recordkeeping should be prepared to account for the following crypto assets.
• Exchange tokens — those that can be used to make payments e.g. bitcoin
• Utility tokens — those which provide you with the right to access goods or services, which will include Altcoins (anything other than bitcoin) and Meme tokens
• Security tokens — those that give you the right to profit and loss in a business venture
• Stablecoins — coins that are pegged to another asset with a stable value, such as fiat currencies like USD, or precious metals like gold.
• NFTs — non-fungible tokens, which are essentially pieces of digital art that are entirely unique and cannot be replicated or replaced.
And you also need to keep track of different activity types.
• Selling crypto for money or money’s-worth
• Exchanging crypto for another
• Staking and staking rewards
• Yield farming
• Wrapping rewards
• Play to Earn (P2E) rewards
• Using crypto to pay for goods or services
• Crypto paid to you by your employer
• Gifting crypto to anyone other than your spouse or civil partner
• Donations to charity
• Worthless crypto
• Lost public and private keys (ouch)
• Scams, such as stolen bags (double ouch!).
And what about your Recordkeeping?
Well, HMRC requires you to keep separate records for each transaction within your wallet, including:
• The type of crypto
• Date disposed
• Number disposed
• Number remaining
• Value in GBP
• Bank statements and wallet addresses
• A record of pooled costs before and after you disposed of
If this is all feeling a bit overwhelming and like you need a magic wand and hat to make all this happen, don’t worry! This is where Rex University and its Partners like Charlton Baker can help you.
As a famous wizard once said, help will always be given at Rex University to those who ask for it!
Check out www.charltonbaker.co.uk/news-blog and filter by crypto assets for much more detail.