Crypto Taxation In The UK In 2023

However, you must pay taxes on money earned from employment, profits made from investments and personal savings, rental incomes, and so on. The laws governing cryptocurrencies, though, are still relatively new and still developing.

The HMRC (Her Majesty’s Revenue and Customs) does not view any crypto assets as a form of money, and it does not matter if they are exchange tokens, utility tokens, or any other type of token.

Exchange tokens such as Bitcoin are often used as a payment method. Therefore, even if you own cryptocurrency as a personal investment and make a profit from it, you will still be required to pay capital gains tax.

Why do you need to pay taxes on your crypto assets? Well, with Bitcoin being the first cryptocurrency, it has gone through many ups and downs in pricing. Since it appeared on the market, it went from costing next to nothing to an all-time high price of $67000 back in 2021.

As a result, many people who have invested in crypto since the beginning have made unbelievable million-dollar profits. As in the case of the UK, any profits over £12,300 are subject to taxation. Therefore, regardless of your opinion on the legitimacy of cryptocurrencies, you will always be required to pay tax on your investment earnings.

If you are considering living in the UK, starting up a crypto-based business, or going there for higher education and you have a crypto-based job, stay with me for the next part, because it pertains to you.

The capital gains tax is the levy on an investor’s profit when an investment is sold and is owed for the tax year during which the asset is sold. As I said, you are subject to pay capital gains tax only if you make profits over £12,300.

As Albert Bushnell Hart said: “Taxation is the price which civilized communities pay for the opportunity of remaining civilized.” Some methods will make you eligible to be taxed:

• If you are a crypto miner
• If you are a crypto trader
• If cryptocurrency is a compensation/salary payment method by your employer
• If your business is run by crypto instead of fiat payment

(In which case, you will also have to pay both income tax and national insurance) You don’t have to worry as long as you are making profits under £12,300 – you are not eligible for taxation. But, as soon as you hit that mark point or anything above it, as a law-abiding citizen, it is your duty to pay your taxes.

Your regular income and the income tax band will determine how much capital gains tax you must pay on your cryptocurrency profits. You might be wondering, what is the tax rate on cryptocurrency gains? Well, depending on your earnings from crypto, it varies from 10% to 20%. Take a look at the following:

• If you have a Basic Rate Income Band (up to £57,270), you must pay a tax rate of 10%.
• If you have a Higher Rate Income Band (up to £150,000), you must pay a tax rate of 20%.
• If you have an Additional Rate Income Band (above £150,000), you need to pay a tax rate of 20%.

Keep in mind that UK Income Tax rates are slightly different from the capital gains tax rates. Capital gains tax is calculated on the profits you make on your crypto investment, whereas income tax is calculated on your total earnings + profits. After reading all this, you might be worried about how exactly you pay your tax in the UK, so let’s get into that.

The Annual Exempt Amount, a yearly exemption granted to every taxpayer in the UK, is £12,300 per person. This implies that if your total gains are less than £12,300, you won’t be subject to capital gains tax and don’t need to notify the HMRC.

However, the Chancellor stated in the Autumn Budget Statement 2022 that this amount will be reduced by half to £6,000 in April 2023 and then to £3,000 in April 2024.

This implies that you will still be eligible for the £12,300 allowance for the 2021–2022 tax year, for which you should have already reported in January 2023. Similarly, you’ll continue to receive the £12,300 allowance for the 2022-2023 tax year, for which you’ll submit a report in January 2024.

However, if you want to make full use of the £12,300 limit before it is reduced for the following tax year, you may want to optimize your tax situation and realize your profits before April 2023, as April is the month that every tax year starts. With that being said, here is what you need to do to pay your crypto tax:

1. First, be sure to register for the Self Assessment tax return.
2. Throughout the tax year, keep thorough records of your cryptocurrency transactions, trading gains, and costs.
3. Pay the tax amount that you owe by midnight of 31st January.

If you need professional help, DO NOT hesitate to use an accountant. In my case, the accountant for my company helped me save almost £4000 just by sorting and submitting the proper crypto records.

Are cryptocurrencies legal in the UK?

Cryptocurrencies are wholly legal in the UK. To define the standard and educate the public about the risks and how to avoid them, the UK government uses rules and regulations.

Can the HMRC (Her Majesty’s Revenue and Customs) track crypto?

Indeed, they can! They have a data-sharing program with all the UK exchanges, and their data is from as far back as 2014.

How much is capital gains tax on cryptocurrency in the UK?

You are obliged to pay capital gains tax (CGT) on any gained profit from cryptocurrency activities. Depending on your earnings, your capital gains tax rate ranges from 10% to 20%.

How can I calculate capital gains tax on cryptocurrency?

Say, you have made £20,000 profit from crypto. Your CGT allowance is £12,300, so you must pay £770 as CGT. Thus, your profit after tax will be £19,230.

How to report cryptocurrency on Tax Returns in the UK?

Keep a neat record of your annual crypto activities. Register for the Self Assessment tax return and submit your documents. The HMRC will calculate what you owe.

When do you pay crypto taxes in the UK?

You will have to pay your taxes by midnight of 31st January every year for every tax year.

How to avoid crypto tax?

As long as you are making profits under £12,300, you are good! If you hit that point or anything above, you are required to pay your tax.

Conclusion

Although tax payment has always been essential, it has been a complex and confusing matter for some. Hopefully, this article has simplified some of these concepts for you. It is vital always to remember that the cryptocurrency industry is a toddler among other humongous financial markets such as Stocks and Security Exchanges and Forex.

Therefore, you must stay updated about the rules and regulations governing the cryptocurrency industry at least weekly, if not daily. As you read this article in 2023, we have passed the 2022 tax year, and you need to keep track of your crypto record for the 2023 tax year.

You need not worry, as I will keep updating articles about daily crypto topics. So stay tuned for more information as it emerges.