UK Question - Withdrawing and the Tax Man Issue

[ChridD]

Hello everyone i'm new and restricted to this forum so having to dump this here.

I have been buying and selling bitcoin for a while, trying to trade in it for a little extra income. The problem i have is withdrawing. I imagine lumps of cash dropping into my account every week or so will raise suspicions with the tax man. Of course i'm not doing anything illegal but it'll be a lot of hassle.

Whats a good way to withdraw and avoid the tax man issue? Basically avoiding my bank account basically.

[ChridD]

I don't mind declaring the income you misapprehend my reason for wishing to not have regular payments into the account, it isn't about avoiding tax. My concern is having the tax man thinking i'm doing something illegal. I'm not but trying to explain bitcoin and all it involves does seem suspicious i'm sure.

See i'm not a tax avoiding bum, i'm a "wanting to avoid the hassle of being questioned and suspected of foul play" bum.

[MiningBuddy]

I don't mind declaring the income you misapprehend my reason for wishing to not have regular payments into the account, it isn't about avoiding tax. My concern is having the tax man thinking i'm doing something illegal. I'm not but trying to explain bitcoin and all it involves does seem suspicious i'm sure.

See i'm not a tax avoiding bum, i'm a "wanting to avoid the hassle of being questioned and suspected of foul play" bum.

Fair enough, you shouldn't really worry, buying and selling bitcoins isn't much different to doing the same with the gold or silver market.
Just keep all your transaction records for at least 5 years, pay the tax and sleep easy at night. If the tax man comes knocking, you have all your paperwork to throw straight back in his face if foul play is suspected.

[Alex Beckenham]

Why is it suspicious to receive regular income?

Isn't 'lumps of cash dropping into your account' what having a job is all about?

[jim618]

You most likely would end up doing a 'full' tax return rather than the usual 'short' tax return.
A bit more paperwork but nothing serious.

I have been audited by HMRC in the past and the secret is to pay promptly and be polite in all your correspondence.   If you are late or stroppy they can fine you 'the same again' i.e. you owe £5000, and the fine is another £5000'.

It is actually worth overpaying slightly if you are in any doubt as that shows you are not trying to con them.   You always get the money back in the end so it's no real loss.

[ChridD]

Receiving regular income isn't suspicious at all, but bitcoin has a rather unfortunate reputation due to the criminal element.

As for records, which should i keep? The bitcoin numbers i buy and sell from and the mtgox information, would that be enough do you think?

[jim618]

oh - and if you are married and your wife is not working you can get her to cash the money out and it uses up her tax allowance.
I believe assets are freeing transferable between spouses so it is perfectly kosher.

[jim618]

RE: records - if you have:
o date bitcoins bought, quantity, price, where from
o date bitcoins sold, quantity, price, who to

I think that would cover it

[ChridD]

RE: records - if you have:
o date bitcoins bought, quantity, price, where from
o date bitcoins sold, quantity, price, who to

I think that would cover it

Thanks jim that's a great deal of help, i must admit i would rather pay the tax and sleep soundly If anyone thinks i need to keep other records to be extra safe please feel free to suggest which ones.

Thanks again to everyone who replied so far.

[jim618]

Thinking about it a bit more, buying and selling bitcoins would be covered by capital gains tax rather than income tax.

If you have a look at:

http://www.hmrc.gov.uk/cgt/intro/basics.htm

you get taxed on the gain in value and I believe it tapers off over time.

[Grant]

Receiving regular income isn't suspicious at all, but bitcoin has a rather unfortunate reputation due to the criminal element.

As for records, which should i keep? The bitcoin numbers i buy and sell from and the mtgox information, would that be enough do you think?

Ive been doing business in virtual worlds for a couple of years (both buy low sell high speculation and actual business), only records i ever delivered to my taxman is the actual withdrawal (and deposit), nothing inside of the virtual world. I consider mtgox a virtual world aswell

[Alex Beckenham]

Thinking about it a bit more, buying and selling bitcoins would be covered by capital gains tax rather than income tax.

What if you buy and sell 1000 times per day? Do you need to list every single trade or just show each day's profit/loss (like daily 'income')?

I've traded FX for income and must have made over 20,000 trades in 12 months... I just declared my overall profit for the year as income (in Australia).

[EhVedadoOAnonimato]

Whats a good way to withdraw and avoid the tax man issue? Basically avoiding my bank account basically.

You answer your own question. Basically avoid your bank account. Try exchanging bitcoins for cash or, better, use them to buy stuff instead of cashing out.
If you cash them into your bank account in a considerable amount, that might bring you the tax man. I have no idea what would be a "considerable amount" in UK, though.

[jim618]

@Alex

Yes - that does make more sense I must admit.   Capital gains is usually on things like houses, cars, valuable that you keep for a while.
If you are trading kilotrades and declare it as a profit that is taxable I can't see the tax man complaining.

That is about the limit of my knowledge - my head is starting to spin already !

[ChridD]

If you MUST declare it all, I'd try to make it look like bog-standard FX trading. Bitcoin is just another currency, right? And if you account for all transactions as standard FX movements then your average taxman will understand *everything* you're doing. This is probably your best bet if all you're doing is trading... if you're actually selling goods and services (whatever those may be) then you'll end up having to explain exactly *what* those goods and services really are. Whether you would appreciate this is your business entirely...

...catfish

Yeah this is my concern, i'm not selling goods or services, just trading so i can keep track of the various trade numbers that are public. However i imagine even this may not be good enough for the taxman due to the nature of bitcoin.

It is sad there is so much suspicion surrounding bitcoin. I am grateful for your more detailed help.

[ChridD]

Ive been doing business in virtual worlds for a couple of years (both buy low sell high speculation and actual business), only records i ever delivered to my taxman is the actual withdrawal (and deposit), nothing inside of the virtual world. I consider mtgox a virtual world aswell

Could you clear something up for me? If you are a part of games like second life, how would you account for the income? I mean if the tax man got all uppity and wanted an audit would they simply apply to the game for records or do you keep them yourself?

Just curious as it may apply to this situation.

[zerokwel]

for me I have told them nothing so far. For one reason I have not transferred any money into my account. I have exchanged bitcoins into items ie gfx cards and silver.

So what am i meant to tell them. ohh i had some bitcoins and I got some silver and a gfx card. what do i owe ya. They would think i was nuts

[ChridD]

for me I have told them nothing so far. For one reason I have not transferred any money into my account. I have exchanged bitcoins into items ie gfx cards and silver.

So what am i meant to tell them. ohh i had some bitcoins and I got some silver and a gfx card. what do i owe ya. They would think i was nuts

Little tip for life, when you ask a tax man what you owe him, he will give you a number

[Grant]

Could you clear something up for me? If you are a part of games like second life, how would you account for the income? I mean if the tax man got all uppity and wanted an audit would they simply apply to the game for records or do you keep them yourself?

Just curious as it may apply to this situation.

I never heard of any game called Second Life, i am however involded in a virtual world by the same name.

The transfers to/from my bankaccount, is what is my RL income/loss, that's what they get to "audit".

[The00Dustin]

Why on Earth has no one made the most obvious suggestion of all?  Spend the bitcoins instead of selling them and depositing the earnings!  I'm not sure how many options there are in the UK specifically, but the wiki lists quite a bit of stuff they can be spent on.  Of course, thisi s only viable if there is something you want/need that is available for BTC at a reasonable price.