How can I minimise paying crypto tax?

1. How can I minimise paying crypto tax?

2. As Mark Twain is reported to have observed “nothing is inevitable except for death and taxes” and while we sincerely hope that your dealings in cryptocurrency will never involve fatalities, we are afraid that you do have to accept that they will certainly attract tax. • To minimise making the kind of errors in your crypto tax affairs that will attract unwelcome attention from Her Majesty’s Revenue and Customs ( HMRC ) it is important to make sure that your dealings in cryptocurrency are scrutinised by an experienced Cryptocurrency Accountant UK tax regulations are, as you might expect, very detailed and there are reliefs available in which we can help you manage your cryptocurrency dealings in the most tax efficient way possible. • The first thing to be aware of is what exactly is being taxed. Currently, there is no specific tax that is levied on cryptocurrency transactions in the United Kingdom.

3. However, if the value of the cryptocurrency you are holding increases that would be viewed by HMRC as a capital gain, and as such would be liable to Capital Gains Tax.

4. In addition, the income that you are paid in cryptocurrency such as consultancy paid in crypto, staking, mining, etc will be liable to income tax at whatever rate applies to you. You must report such income and capital gains on your tax return and of course, it goes without saying that all applicable tax must be paid. • If you take the time to consult with our accounting firms in Luton or our teams who undertake accounting in Cambridge they can help you to ensure your tax return accurately reflects the income and capital gains you have made as a result of your cryptocurrency investments, ensuring that you are absolutely within all applicable United Kingdom tax regulations.  • This is important because failure to comply with tax regulations can attract fines and other penalties. 

5. At the same time, it is also sensible to work within the regulations to limit your tax liability, something that is a lot easier to do with the aid of an experienced cryptocurrency accountant. UK tax regulations contain a number of allowances which you should be aware of. • HMRC currently regards cryptocurrency as a capital asset rather than a currency which means that if you sell, trade, or spend any crypto you will be required to pay tax on any capital gain that you have made. • In other words, if you spent £1,000 purchasing your cryptocurrency and then use it to purchase £1,500 worth of goods or services, you will be liable to pay capital gains tax at the appropriate rate on the £500 that your crypto investment has grown by.

6. Capital gains tax would also apply if you gave your cryptocurrency away to anybody other than your spouse or civil partner. • There may also be tax liabilities involved if you are using cryptocurrency in a Decentralised Finance or “DeFi” transaction. Recent guidance from HMRC indicates that DeFi transactions may be liable to Income or Capital Gains tax, but that this is dependent on “the nature of transaction”. • Whether the transaction is judged to involve income or a capital gain also has a bearing. As you can see, it is better to have the assistance of an experienced crypto accountant when conducting such transactions. • Our Luton accounting firms would be only too happy to help guide you through this crypto taxation minefield.

7. If you call upon the services of either our team in Luton, or our team that handles accounting in Cambridge they will be able to help you understand whether your cryptocurrency transaction is or is not liable to taxation, but they can also talk you through the various tax allowances to which you may be entitled. For instance, the first £12,570 of personal income in any tax year is tax free, as is the first £12,300 of capital gains and you can make an additional £1000 of income in trading or property too. • Organising your crypto trading to take advantage of these allowances can be complicated work for a cryptocurrency accountant. • UK tax laws also allow you to offset capital gains against capital losses, so perhaps one of the key answers to the question “How can I minimise paying crypto tax?” is “keep very careful records” because in order to offset gains against losses you do need to be able to prove the loss to HMRC.

8. Our accounting firms in Luton and Cambridge can also advise you regarding the other circumstances when crypto transactions can be free of tax. • For example, if you are buying a cryptocurrency using a fiat currency — that is to say a regular Government back currency such as Stirling or the US Dollar — moving cryptocurrency between different wallets that you own or giving to a registered charity or to your spouse no tax is payable. • Obviously, with the help of a good accountant, it is possible to manage your crypto assets to use these allowances to improve the tax efficiency of your portfolio. • As you can see, there are many ways to ensure that your cryptocurrency transactions can be made more tax efficient in terms of capital gains tax. 

9. But if you are being paid in cryptocurrency for goods or services that you have supplied the value of the cryptocurrency will be subject to income tax at whatever rate you pay, and may also be liable to National Insurance deductions as well. Cryptocurrency gained through mining tokens would also be regarded as income and taxed accordingly. • The regulations regarding what HMRC will and will not consider to be income are still a little vague, and you should definitely consult a cryptocurrency accountant. • UK tax rules surrounding which transactions are or are not deemed to be income generating are easy to misinterpret and you could save yourself a great deal of effort and trouble by employing an experienced pair of eyes to take a look at your accounting. Cambridge and Luton clients know that here at MMBA our eyes are very experienced indeed.

10. This experience is important because HMRC can monitor cryptocurrency transactions. Since October 2021 they have been very clear that it plans to investigate holders of digital currency with the express purpose of discovering previously undeclared gains. • If you hold any cryptocurrency you may already have received a “nudge” letter from HMRC to inform you of the importance of paying any taxes that may be due on your cryptocurrency assets. You should not ignore this issue which will certainly not go away. • Given the incredibly complex nature of the rules involved, and all of the potential penalties for not adhering to those rules we would always strongly recommend seeking professional advice. In the end, there is no way to mitigate paying crypto tax, but you can ensure that you pay the right amount of tax. The best way to do that is to take the advice of experienced professionals with the right kind of expertise. So come and talk to MMBA and we will help you to keep all of your crypto affairs in order.

11. Thank You For More Information Visit: https://www.mmba.co.uk/