Digital currency stored in the decentralised ledger technology known as Blockchain saw a massive boom last year with media coverage on the rise of Bitcoin leading to many other coins emerging and seeing similar value growth. The inevitable bust scenario also occurred and many people rode these waves to make profits (and losses).
The variances in price are wild with digital assets and those trading deal with large percentages of change.
At the tail end of last year, HMRC realised a bunch of guidance literature on how to deal with the tax implications of trading in cryptocurrency, available at gov.uk/government/collections/cryptoassets. Initial guidance would lead people to believe trading Bitcoin or similar would be treated as gambling and thus not liable to tax but this position has changed with the updated clarification.
The assets are to be treated as any other asset and therefore gains or losses, over the annual allowance (and other costs plus allowances) would be liable to capital gains tax (CGT). Gains or losses are recorded when the cryptocurrency is traded for another currency or another cryptocurrency type.
All 'trades' would need to be pooled with each trade recording the value of any gain or loss in GBP, or GBP via another traditional currency.
Mining cryptocurrency would be liable to income tax where coins are sold after having been mined. In this scenario the costs (sometimes significant) of the mining operation would be subtracted from the payment received for the coins.
Many people may be caught under the scenarios described above and, with the tax deadline now three weeks away, time is running out to get tax compliant.
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