With the deadline to register for self-assessment rapidly approaching, the Association of Taxation Technicians (ATT) is warning individuals who have been investing or trading in cryptoassets to make sure that any tax consequences are reported to HMRC.
While the world of cryptoassets might be virtual, with users keeping their holdings in digital wallets secured by digital keys1, it is possible to make very real profits, gains or losses which should be declared to HMRC on a self-assessment tax return.
An individual who has realised income or gains on cryptocurrencies for the first time in 2017-18 has until 5 October 2018 to register for self-assessment.
Once registered, they will need to complete and submit their self-assessment return, and settle any taxes due, by 31 January 2019.
Individuals who made cryptocurrency transactions before 6 April 2017, but who have not yet advised HMRC of their income or gains, should consider if they also need to file returns for previous years. Individuals who have made losses should also consider what they need to report to HMRC2.
Jon Stride, Co-Chair of the ATT’s Technical Steering Group said
“As the number of people prepared to consider involvement in cryptoassets – and the number of different types of cryptoassets – has increased dramatically over the last few years, so has HMRC’s interest in this area. While the tokens themselves are not tangible, trading or investing in them can generate some very real tax liabilities which HMRC will want to know about.
“A common problem when trying to establish the tax position is ensuring that the individual has adequate records of the transactions that they have made. Some trading platforms only keep details of transactions made in the last six months. It is therefore important that individuals make sure they keep sufficient information that they can establish their tax position.
“Individuals also need to keep clear records of the different types of token that they hold. Many people believe that gains only arise when cryptoassets are exchanged for currency such as sterling which is legal tender. In fact, it is possible for a taxable gain or loss to arise when exchanging one cryptoasset for another.
“Even if the individual has a complete record of their transactions, there is still uncertainty over the tax treatment. HMRC’s latest guidance was published in 2014 and the world of cryptoassets has changed a lot since then3.
"HMRC is in the process of updating their guidance for individuals and we are hopeful this will be published in time that individuals can make use of it when completing their tax returns by 31 January 2019.”
Notes for editors
1. Despite their lack of physical form, digital tokens can have a value. Some can be exchanged for goods and services while others grant certain rights to their holders. Users hold their virtual assets in one or more digital ‘wallets’ either in the cloud or on their computer. Each wallet will be secured by a digital key known only to the user. Transactions in cryptoassets are recorded on a public ledger which operates on a peer-to-peer network (i.e. there is no central server). The network handles the creation and processing of transactions which are recorded in a blockchain. This blockchain is secured by cryptography and each transaction made is recorded and incorporated into the next block added to the chain.
2. An individual investing in cryptoassets who has:
- made gains in excess of their annual exempt allowance (£11,300 for 2017/18), or
- disposed of more than £45,200 of assets in 2017-18, or
- who wants to claim an allowable capital loss
is required to report their disposals on a self-assessment return. Relief is not available for a capital loss unless the loss is reported to HMRC on a tax return (or in some cases by letter). Individuals can make a claim for capital losses up to four years after the end of the tax year of disposal.
Where the individual started trading in cryptoassets in 2017-18 then the individual should be registered for self-assessment by 5 October 2018 and any profit or loss should be reported by 31 January 2019.
3. The key issue for most individuals will be determining whether the nature of their activities means that they are trading in cryptoassets or investing in cryptoassets. Traders will be subject to income tax on any profits or losses while those investing will be subject to capital gains tax. In general, most individuals engaged in cryptoasset transactions are likely to be investors and not traders. The existing HMRC guidance from 2014 can be found here, but individuals with significant cryptoasset holdings may wish to consider taking professional advice, and whether or not to wait for HMRC’s promised revised guidance before submitting their 2017/18 tax returns.