Cryptocurrency has become a significant part of the financial landscape, attracting both individuals and businesses in the UK. However, navigating the complex world of crypto taxation can be challenging. In this article, we will delve deeper into the tax implications of cryptocurrency transactions for corporates in UK, providing additional details to help ensure compliance with HMRC regulations.
Cryptocurrency Taxes for Businesses:
For businesses and companies engaged in cryptocurrency activities, various taxes may apply, depending on the nature of their operations. These taxes include:
Capital Gains Tax (CGT): When businesses sell tokens, they are subject to Capital Gains Tax on any gains made. CGT is calculated based on the difference between the selling price and the acquisition cost of the tokens
Corporation Tax: If a business generates profits from its cryptocurrency activities, these profits are subject to Corporation Tax. It is important to note that any expenses incurred in the process of generating these profits can be deducted before calculating the taxable amount.
Income Tax: Businesses that earn income directly from cryptocurrency-related activities, such as providing crypto-related services, are liable for Income Tax on the earnings.
National Insurance: If businesses employ individuals who receive part of their income in cryptocurrency, both the employees and the company may be subject to National Insurance contributions.
VAT: Businesses accepting cryptocurrencies as payment for goods or services may need to account for Value Added Tax (VAT) on the value of the goods or services provided.
Compliance with GAAP Guidelines:
When calculating trading profits for Income Tax or Corporation Tax, businesses must follow Generally Accepted Accounting Principles (GAAP) guidelines. This allows for necessary legal adjustments and ensures accurate reporting of financial activities.
Understanding Allowable Costs: The UK's Taxation of Chargeable Gains Act (TCGA) 1992 provides guidelines on the types of costs that businesses can deduct as allowable expenses when calculating taxable gains or losses on cryptocurrency transactions. These allowable costs include:
Consideration: The original amount paid for acquiring the tokens, denominated in pound sterling.
Transaction Fees: Any fees incurred for processing cryptocurrency transactions on the distributed ledger
Advertising Costs: Expenses related to advertising for either the sale or purchase of tokens.
Professional Costs: Costs associated with hiring professionals to draw up contracts for acquiring or disposing of the tokens
Certain crypto transactions are tax-free in the UK. These include:
Buying Crypto with Fiat Currency: Purchasing cryptocurrencies using fiat currency (e.g., GBP) does not trigger any tax liability.
Holding Crypto: Simply holding cryptocurrencies in wallets without engaging in any transactions is not subject to tax.
Transferring Crypto Between Own Wallets: Moving same cryptocurrencies between wallets owned by the same individual or entity is tax-free. Once crypto changes form for example from ETH to USDT it may trigger a taxable event
Gifting Crypto to a Spouse or Civil Partner: Gifting cryptocurrencies to a spouse or civil partner is also exempt from tax.
Strategies for Reducing Crypto Taxes:
To reduce crypto taxes, businesses can employ various strategies, including:
Utilizing Tax-Free Thresholds: Take advantage of tax-free transactions to minimize taxable events.
Trading Tax Breaks: Be mindful of the tax implications of trading, and explore opportunities to optimize tax efficiency.
Investing Crypto in a Pension: Some pension schemes allow investments in cryptocurrencies, which can provide tax advantages.
Donating Crypto to Charity: Donating cryptocurrencies to registered charities may offer tax relief benefits.
Offsetting Crypto losses with gains in UK
In UK, crypto losses can be offset against gains to reduce the overall tax liability. When calculating the tax on cryptocurrency gains, any losses incurred from other cryptocurrency transactions can be deducted, resulting in a net gain or loss position for tax purposes.
It's important to note that losses can only be offset against gains in the same tax year. If losses exceed gains in a tax year, the remaining losses can be carried forward to offset against future gains in subsequent tax years. This can be beneficial for individuals or businesses with fluctuating crypto investments, as they can use losses from one year to reduce tax liabilities in future years when they have gains.
However, it's crucial to maintain accurate records of all cryptocurrency transactions and losses to substantiate any claims for offsetting losses against gains. Proper accounting and record-keeping are essential to comply with tax regulations and ensure accurate reporting to HMRC. As always, individuals and businesses should seek professional advice from tax experts or accountants to understand and navigate the complexities of cryptocurrency taxation effectively.
Cryptocurrency taxation in the UK can be complex, and businesses must stay informed about the latest HMRC guidelines and comply with tax regulations. By understanding applicable taxes, allowable deductions, and tax-free transactions, stakeholders can effectively manage their cryptocurrency activities while ensuring compliance with tax laws. Professional advice and accounting expertise may be necessary to navigate this evolving landscape successfully.
At Evalua8 we help our clients effectively navigate the crypto taxation maze as part of the Crypto Treasury Management services. Please reach out to us at https://www.evalua8.com/contact-us