Crypto Taxes in the UK
The pool of allowable cost is adjusted each time an ‘operative event’ occurs. An operative event is anything which reduces or increases the value of the pool of cost. Purchases and sales of shares are the most common examples of operative events. (HS284, HMRC, April 2020)
A disposal is ‘an occasion when you sell an asset or give it away’ (HMRC’s guidance in the Capital Gains Manual at CG10242).
For capital gains tax purposes, a disposal is therefore one of a number of transactions including a sale, a gift, an exchange of assets, a part disposal, the loss or destruction of an asset, an option, transfers into a trust, etc.
The date of disposal for capital gains tax purposes is determined as being when there is a beneficial ownership change, not when legal ownership passes to the acquirer. (Making a Disposal, Taxation.co.uk, 2020)
Means the gains/losses generated from cryptocurrency from:
- selling it
- giving it away as a gift, or transferring it to someone else
- swapping it for something else
- getting compensation for it - like an insurance payout if it’s been lost or destroyed
(Capital Gains Tax, HMRC, 2020)
Allowable costs are expenses charged to a sponsor and recognized as a fundamental part of a contract between two entities. Often used for reimbursement for services performed on behalf of the government, allowable costs are usually specified in the contract or as part of the laws regulating the respective government body.
Gains in the year (before losses)
There are two types of capital gains:
- Short-term: If an asset is held (or owned) for a year or less before it is sold, then any capital gain is considered short-term. Short-term capital gains are taxed differently than a long-term capital gain. Short-term capital gains are taxed at your ordinary tax rate, or in other words, your tax bracket for the given tax year.
- Long-Term: If an asset is held (or owned) for more than one year, then any profit from the sale of the asset is considered a long-term capital gain. Long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.
Losses in the year
If a capital gain is the money that you make on the sale of your home or investments, then the money you lose is called a capital loss, in other words, you made no profit from selling your asset. The capital loss can be deducted from your income, however, there are some limits to this. You can deduct capital losses on investment property only, not on property that was owned for personal use. Losses on your investments are first used to offset capital gains of the same type.
Net capital gains/losses
The total of capital gains minus any capital losses is known as the net capital gains. Capital gains can be reduced by deducting the capital losses that occur when a taxable asset is sold for less than the original purchase price.
All gains that are not generated from receiving cryptocurrency as payment
Payments received in the form of cryptocurrency. If that cryptocurrency is sold, it will generate, it can generate a capital gain or loss
Disposal of standard orders and transfers
Every transaction made that was generated by trading or by selling cryptocurrencies and not by income.
Similar to a fixed deposit which rewards you with a defined interest at the end of the period as stipulated in the contract, Proof of stake also rewards you with additional coins. By holding coins in your wallet, you are rewarded for supporting the network. Therefore, your coins will increase in number depending on how long you hold them in the wallet.
Proof of work is a requirement to define an expensive computer calculation (mining) that needs to be performed in order to create a new group of trustless transactions (the so-called block) on a distributed ledger called blockchain.
Mining serves as two purposes:
- To verify the legitimacy of a transaction, or avoiding the so-called double-spending;
- To create new digital currencies by rewarding miners for performing the previous task.
Masternode is defined as a governing hub in some cryptocurrency networks. It requires initial collateral of tokens (or a “stake”) to operate. There are around 300 currencies that leverage on the POS format. However, most know one is Dash. Dash allows you to run a masternode is you have more than 1,000 tokens.
Bounty programs are incentives offered to an array of participants for various activities associated with an initial coin offering (ICO). The participants are spread across various stages of an ICO and range from investors to ICO promoters and developers. The incentives can take the form of cash rewards (usually rare) and free (or discounted) tokens which can be cashed in later when the tokens are listed on an exchange.
Margin trading with cryptocurrency allows users to borrow money against their current funds to trade cryptocurrency “on margin” on an exchange. In other words, users can leverage their existing cryptocurrency or dollars by borrowing funds to increase their buying power (generally paying interest on the amount borrowed, but not always)
Profits generated from margin trading. For tax purposes, this is relevant as they are considered differently for tax purposes. Talk to your CPA for further clarification.
Losses generated from margin trading. For tax purposes, this is relevant as they are considered differently for tax purposes. Talk to your CPA for further clarification.
Fees generated from cryptocurrency margin trading paid to the broker.
Full data set
A full data set is a consolidation of all information inputted or imported inside of the ACCOINTING platform displayed through a screen or downloadable in a .csv output.
The disclaimer is the legal-rational behind the computations, interpretations, and calculations of the information displayed in the platform. It is a way of establishing how things are computed and the implications behind it if any.
If you have generated any income or capital gains as a UK citizen, you will need to report it to the tax authorities in your country. For more information on how to file your taxes in the UK, please refer to this link.
If you have a large amount of gains whether by income or capital gains, you will need to file for an Anti-Money Laundering Report which should explain exactly where all your transactions happened and the exact amounts for them. For more information about AML reports for the UK, click here.
In order to deposit your profits, you will need to report to your bank the origin of your funds. Please read more about it here.
GoSimple Tax allows you to input your Accointing report into their platform. Click here to visit their site.