tax on bitcoin profits in United Kingdom? [Solved]

[frowsiter]

In my country bitcoin is not in any way regulated by law. It is still not recognized so no taxes to pay, but once you change the currency further actions fall under the tax base.

Same thing with my country. People of my nation still don't know what bitcoin is or may be this is the case where they are not able to accept it for some reasons. So I believe government has also not taken any initiative with regulating bitcoin and all related activities. Nah be this is profitable for now but soon when people will start recognising it government will start thinking about its laws.

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[ModFather]

Had a meeting with my accountant last week and I brought up bitcoins again. He had previously told me if I was buying to hold it's classed as speculating (ie gambling) and no income tax to pay, just CGT if I went over the threshold.

To clarify, I asked last week this question:

"so in theory, I can buy £100 worth of btc week one, sell for £200 week two, and repeat this process throughout the year, if the prices dipped/rose accordingly, and I gambled on that... and at the end of the year my profit of £2600 (£100 profit each 2 weeks) would be subject only to CGT (and ofc falls below the yearly threshold)"

^ Again, a theoretical question, so I could get confirmation that the ONLY thing I need to worry about is CGT (as I'm not a trader arbing on localbitcoins etc, simply a speculator 'gambling' on polo/bittrex/etc). This time I got as a reply:

---------
"We have reviewed various documents and the tax treatment is a very grey area. It appears profit on trading in Bitcoins may be taxable depending on the frequency and profit being generated.

To enable us to look at it in more detail and hopefully ensure we give you the correct advice could you please let me have the following information:

How often to you buy Bitcoins as an investment.

How much do you tend to invest each time.

How much profit have you made.

It appears if you are investing on a regular basis it may be considered to be trading and be subject to Income Tax or Capital Gain Tax."
---------

This has put the wind up me slightly (I have around £30k in various crypto at any one time), and I would love if anyone can point me directly to some more concrete 'evidence' so to speak, regarding the difference between being a trader liable for income tax on earnings versus a speculator trying to cash in on dips/lows. My thoughts are trader (in anything) = buy 'stock' from source A, sell said stock at place(s) B(C,D,E,etc)

I'll be stunned if what I do is classed as trading, but as fellow UK people will know, the taxman will grab any chance to anally probe all and sundry if it means they can make a pound from it. I also get that accountants are a bit like seo experts... ask 10 and get 10 different answers, and as for the HMRC it's pot luck whether you get a competent civil servant or a f**kwit giving you totally wrong info, so a bit of a long shot but if anyone KNOWS the answers to what constitutes a trader liable for income tax (CGT is pretty simple) I'd be forever grateful for some input.

Thanks in advance :-)

[ModFather]

little bump for last post in case anyone can help

[Last of the V8s]

little bump for last post in case anyone can help

poke around on that .gov.uk site posted many times upthread
my guess: you have nothing to worry about

[ModFather]

little bump for last post in case anyone can help

poke around on that .gov.uk site posted many times upthread
my guess: you have nothing to worry about

As anyone in the UK knows, that gov.uk site is about as useful as a kick in the nuts

I did hear back from the accountant, and does seem as I need to be up a level or several before being classed as trading and have to worry about income tax, though the CGT part is a pain in the ass... apparently they want a record of every btc transaction, a transaction being: buy btc, sell that btc

No scope for exchanging btc to other crypto, or usdt, or leaving various crypto in exchanges while trading; so as usual, a gov't tax department is far behind the curve of what is actually involved.

[derekok]

if anyone KNOWS the answers to what constitutes a trader liable for income tax (CGT is pretty simple) I'd be forever grateful for some input.

Thanks in advance :-)

There is no concrete answer given by HMRC, they simply say each individuals circumstances is examined on a case by case basis.

The list of questions from your accountant reflects this situation. HMRC use 'common sense' (!) to designate trader from speculator.


As I understand it:

For the everyday working person if speculating (ie gambling) on asset/stock moves in your part time you pay no income tax OR CGT on any profits. This would likely be the case so long as you make more money from your working than trading. However if speculating actually is your sole income they will likely decide you are a day-trader and so liable to IT on your trade profits.

Here are some more scenarios: so if you work and speculate twice a week and hold your positions for a few hours at a time they may say you pay no IT on that speculation nor CGT. But if you DON'T work but speculate twice a week holding positions for only a few hours they may decide you are a day-trader liable for IT. Similarly if you work and speculate twice a week but hold positions for weeks at a time they may decide you are investing and need to pay CGT on profits. If you work and trade 20 times per week holding positions for a few hours and make 50% of what you take home from work they may say you pay no IT or CGT on that profit. But if you make 200% of your job income you may be asked to pay IT as they would see you more as a day trader (based on your sucess rate).

Only HMRC can give you your particular answer once you have outlined your position to them and they have looked at the situation based around these general rules.


NB - I am not a tax advisor and have deduced this from HMRC website and may be wrong so seek professional advice for further clarification.

[berluscoin]

https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country_or_territory#Central_Europe

From Wikipedia:

The government of the United Kingdom has stated that the bitcoin is currently unregulated and is treated as a 'foreign currency' for most purposes, including VAT/GST.[2]:United Kingdom

Bitcoin is treated as 'private money'. When bitcoin is exchanged for sterling or for foreign currencies, such as euro or dollar, no VAT will be due on the value of the bitcoins themselves. However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrency. Profits and losses on cryptocurrencies are subject to capital gains tax.

[alexgeorg86]

So I have a question too. I would like to hear your thoughts on the following scenario.
Someone with an LTD company in the UK provides services and accepts as a payment bitcoins.
The whole capital of this company is in bitcoin and not in FIAT. Then the company shares dividends to its shareholders (non-UK residents) and these dividends are in bitcoins too.
What will be the taxes and VAT for that company if no FIAT will be used?
Also, is this scenario possible?

Thanks in advance.

[Razick]

https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country_or_territory#Central_Europe

From Wikipedia:

The government of the United Kingdom has stated that the bitcoin is currently unregulated and is treated as a 'foreign currency' for most purposes, including VAT/GST.[2]:United Kingdom

Bitcoin is treated as 'private money'. When bitcoin is exchanged for sterling or for foreign currencies, such as euro or dollar, no VAT will be due on the value of the bitcoins themselves. However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrency. Profits and losses on cryptocurrencies are subject to capital gains tax.

This is actually pretty cool to know. So there is not nearly as much right now in the UK on Bitcoin than their fiat.

Bitcoin is also unregulated where I live still, and at the moment I am now wondering if BTC is taxed or if it is considered an asset whereby we would need to pay tax on our gains from it. I think there is not doubt that in the next 5 years we are going to start to see governments really look into taxing crypto... finding ways to make it possible, because right now it really is impossible.

[frodev]

https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country_or_territory#Central_Europe

From Wikipedia:

The government of the United Kingdom has stated that the bitcoin is currently unregulated and is treated as a 'foreign currency' for most purposes, including VAT/GST.[2]:United Kingdom

Bitcoin is treated as 'private money'. When bitcoin is exchanged for sterling or for foreign currencies, such as euro or dollar, no VAT will be due on the value of the bitcoins themselves. However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrency. Profits and losses on cryptocurrencies are subject to capital gains tax.

This is actually pretty cool to know. So there is not nearly as much right now in the UK on Bitcoin than their fiat.

Bitcoin is also unregulated where I live still, and at the moment I am now wondering if BTC is taxed or if it is considered an asset whereby we would need to pay tax on our gains from it. I think there is not doubt that in the next 5 years we are going to start to see governments really look into taxing crypto... finding ways to make it possible, because right now it really is impossible.

Actually this applies only to the VAT aspect. VAT is  charged TO consumers/customers and collected BY businesses/companies who are VAT registered, who then pass it on to HMRC. So no VAT is charged on transactions between currencies (including bitcoin and other cryptos), but VAT is still payable on transactions of normal goods and services (where normally applicable) that are transacted in bitcoin/crypto.

The issue of Capital Gains tax and Income tax is a totally separate issue to the VAT rules.

[oralnuts]

Wow, this is seriously an interesting issue about bitcoin and even other countries share the same outcome with UK. But, is it true that it's regarded as private or exclusive money?

[ModFather]

clarification from accountant:

HMRC classify you as a trader *if* you are doing 'hundreds of trades daily/weekly'

if you aren't, then you are liable only for CGT (threshold £11,300, rate = 10% CGT for lower rate taxpayers, 20% CGT for higher rate taxpayers) for each disposal.

Don't take my accountant's word for it though, although this info should be helpful to us UK people - Always check with your own accountant.

[ModFather]

if anyone KNOWS the answers to what constitutes a trader liable for income tax (CGT is pretty simple) I'd be forever grateful for some input.

Thanks in advance :-)

There is no concrete answer given by HMRC, they simply say each individuals circumstances is examined on a case by case basis.

The list of questions from your accountant reflects this situation. HMRC use 'common sense' (!) to designate trader from speculator.


As I understand it:

For the everyday working person if speculating (ie gambling) on asset/stock moves in your part time you pay no income tax OR CGT on any profits. This would likely be the case so long as you make more money from your working than trading. However if speculating actually is your sole income they will likely decide you are a day-trader and so liable to IT on your trade profits.

Here are some more scenarios: so if you work and speculate twice a week and hold your positions for a few hours at a time they may say you pay no IT on that speculation nor CGT. But if you DON'T work but speculate twice a week holding positions for only a few hours they may decide you are a day-trader liable for IT. Similarly if you work and speculate twice a week but hold positions for weeks at a time they may decide you are investing and need to pay CGT on profits. If you work and trade 20 times per week holding positions for a few hours and make 50% of what you take home from work they may say you pay no IT or CGT on that profit. But if you make 200% of your job income you may be asked to pay IT as they would see you more as a day trader (based on your sucess rate).

Only HMRC can give you your particular answer once you have outlined your position to them and they have looked at the situation based around these general rules.


NB - I am not a tax advisor and have deduced this from HMRC website and may be wrong so seek professional advice for further clarification.

not sure why anyone would ever think the bolded part of your quote. In a thread like this, best not to muddy waters with pure guesswork, as quite a bit of your post is way off.

[themaxx]

The answers are here: 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-cryptocurrencies

[STT]

As I understand it you can only really pay taxes as a sole trader where its your principal income and its considered a profitable enterprise.  They will not allow you to deduct costs and all sorts of normal business activity unless its considered a reasonable ongoing concern as a business.    This is to avoid people delibrately setting up loss making ventures in order to obtain equipment more cheaply then a consumer.

I read a case of someone who makes crafts on etsy website and really is very border line in their profits and only found out months later that the tax man considered them not a business but just a hobby.  This person was in effect unemployed for that period and not able to file costs or other deductions.   I would take the first year of trading as a maybe before continuing in any larger way.


On the plus side, gambling in UK is far more tax free then alot of countries.   You can gamble on the bitcoin price quite easily now via various betting firms.