Complexity of Crypto-Income: All You Need To Know About Taxation

A cryptocurrency is a digital currency which uses cryptography, which is encryption technology when created to ensure the security of its transactions. There is no doubt that this technology is taking more and more of a grip on various industries. As cryptocurrencies are relatively new, there will always issues and questions that need to be addressed and resolved. One of these issues is with regards to taxation.

Whilst cryptocurrencies are virtual, a consideration that many forget when contemplating trading or investing in this form of currency is that taxes might apply; and this is sometimes overlooked. There is currently no consensus internationally on the legal status of these currencies and it is an area currently receiving more and more attention, as the demand for them grows, meaning the law needs to evolve also.

In the UK, if a person uses a cryptocurrency to send money overseas for example or pay for games there is no obligation to keep a record of it. However, if an individual or business decides to use cryptocurrency as an investment or to set up a business and take payments this way, then they have some obligations. A record must then be kept of this and any gains or income must be reported to HMRC. Penalties of up to £3000 can be imposed upon those who do not keep proper records and 100% fines can be charged, it can result in imprisonment due to a failure to pay tax.

For holdings of investments it is important to keep a record in the same way that records would be kept for conventional investments, such as stocks and shares. Each separate cryptocurrency needs its own spreadsheet, along with info such as the date of any transactions, whether it was used to buy or sell, how many units of the currency, the value in pounds sterling and a running total of the cryptocurrency value.

The annual exemption for earnings under £11,600 is also applicable to cryptocurrencies, but it can be difficult to keep a track of this due to the volatile nature of cryptocurrencies and therefore the constantly changing value.

For businesses, cryptocurrency must be classed as a foreign currency for accounting purposes. Some accounting software does have in built capability to handle multiple currencies, but even the most basic ones will be able to adapt to keep multi-currency transactions.

Gamblers need to also be aware of taxation of their winnings in terms of cryptocurrency. In this industry, there are numerous online slots brands offering cryptocurrencies as a banking option; with many other established brands such as mFortune Online Slots Casino weighing up the risks and benefits of introducing this as a payment option. So, with regular currency winnings made through gambling no tax has to be paid, however if you are playing online at a casino, you may need to pay taxes on your winnings if they are generated in cryptocurrency, within US sites. Luckily for UK players, they don’t need to pay taxes on any gains made through gambling at present and this is a loophole that some cryptocurrency traders have been exploiting, therefore it is likely to Government will look to try and shut this down at some stage.

From a taxation perspective there is still a lot of uncertainties around cryptocurrency and the best approach to take is full disclosure of the individual position to HRMC, to avoid any penalties or issues.

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