I think there is alot of confusion over tax of crypto in the uk.
I have looked into this and I hope some will find this helpful as in the future when some people declare there profits they are going to be asked why they did not declare it before and may face the consequences.
HMRC class cryptocurrency investing the same as foreign exchange and therefore recognise it as a currency not an asset as some are saying.
https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrenciesThe information I am about to share has been gathered by speaking to HMRC direct and I have spoken to 3 accountants one of which was willing to look after all my crypto accounting for a fee, I decided to do it myself.
Here some accountancy firms that understand crypto: (I do not use them but have spoken to butler).
www.butler-co.co.uk http://www.saffery.com/It took 4 attempts to get someone at HMRC who knew what they were talking about regarding crypto.
OK, I was always under the understanding that you declare your profits when you go back to GBP from bitcoin but this is not the case.
If you buy 1 bitcoin for £2000 (be nice today wouldnt it) and purchase another coin lets say ltc and when you did so btc had jumped to £2500. You have made £500 profit when you divest from btc and purchase ltc.
let say you then sold your ltc back to BTC and your £2500 worth of ltc was now worth £3000 you have now made another £500 profit, you now have gone from a £2000 investment in btc to ltc and back to btc and have made a £1000 profit (subject to capital gains tax at the end of the year.
But hang on now BTC has crashed back down and your holding of btc is now worth £2000 you decide LTC may be better again and buy £2000 worth of ltc with your btc and now have made a loss of £1000 which has wipe out your profit you had made. Now you have no CGT to pay.
You do not have to go back to GBP for tax to be payable to the HMRC at the end of the year.
So lets say you logged all your trades, I use
https://cointracking.info/ and highly recommend it, I use it for all my crypto accounting including trading,mining and proof of stake coins. Just import the csv of data from wallets opr exchanges etc and bingo cointracking fills the gaps in price to GBP etc. Cointracking get the data from coinmarketcap.com
At the end of the year cointracking can output a tax report showing your gains after losses are taken off.
So lets break it down to what happens at the end of the year.
The first £11,300 of capital gains is not taxed.
Now your current income has to be taken into consideration as the 45k threshold will reflect how much capital gains will be taxed at 10%
Lets say you earn £25k income and paid your due taxes now you have £20k left of your tax threshold left.
Lets say your capital gains for the year was £60k
its calculated like this
£60,000 - £11.300 tax free amount = £48,700
10% CGT - £20,000 = £2,000
20%CGT - £28,700 = £5,740
Total CGT payable to HMRC £7,740
Over the £45k threshold you are taxed at 20% up to unlimited so in my example @ £60k would be the same even if it was £10,000,000
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If you are mining HMRC class this as the creation of coins and is therefore liable to income tax on the value of the coins at the time you received it, this is the same for POS coins as it is the creation of coins. Then subject to capital gains tax for profits when sold or losses as the case may be.
I hope this helps people avoid a nasty surprise when they thought they had done so well with the profit going back to GBP and declaring it.
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