Alexander Holm, a cryptocurrency tax specialist in our private client tax team, has co-authored Crypto Tax Calculator’s guide to paying tax on cryptocurrency transactions in the UK.
Available on the Crypto Tax Calculator website, this up-to-date guide provides a detailed step-by-step advice on how to calculate your cryptocurrency taxes in the UK and report them to HMRC for each financial year starting on 6 April and ending on the following 5 April.
From identifying taxable events to calculating your liabilities for both capital gains tax (CGT) and income tax, it breaks down everything you need to know to stay on top of your obligations.
What the guide covers
1) Overview of how to pay your crypto tax in the UK
2) Step 1. Record keeping
3) Step 2. Identify taxable events
4) Step 3. Apply Special HMRC rules
5) Step 4. Calculate your Average Cost Basis
6) Step 5. Deduct fees
7) Step 6. Calculate your crypto capital gains or losses
8) Step 7. Calculate income from cryptocurrency activities
9) Step 8. Calculate your overall crypto tax liability
10) How to calculate your crypto tax with Crypto Tax Calculator
11) How DeFi (decentralised finance) is taxed in the UK
12) How crypto mining is taxed in the UK
13) How hard forks are taxed in the UK
14) How selling NFTs is taxed in the UK
15) Tax forms you may need for crypto
Overview of how to pay your crypto tax in the UK
1. Record keeping: Maintain detailed records of all crypto transactions in GBP, including dates, transaction types, fees, and equivalent GBP values, to ensure accurate tax reporting.
2. Identify taxable events: Determine which transactions, such as selling or swapping crypto, trigger a Capital Gains Tax (CGT) or Income Tax liability under UK law.
3. Apply special rules: Account for the “Same Day” and “Bed and Breakfast” rules that adjust the cost basis for trades made on the same day or within 30 days.
4. calculate your average cost basis: Use the average cost basis method, also known as a section 104 pool, to calculate the cost of your cryptocurrency holdings for capital gains calculations.
5. Deduct fees: Deduct transaction-related fees, such as exchange or gas fees, to reduce your taxable gains. HMRC have provided guidance on when they expect such costs can be deducted..
6. Calculate capital gains or losses: Subtract your adjusted cost basis and fees from the proceeds of each taxable event to determine your capital gains or losses.
7. Calculate income from crypto activities: Identify income-earning crypto activities like staking or mining, and calculate their taxable value in GBP at the time of receipt. This will also include airdrops when an action has been performed in return for the airdrop.
8. Calculate your tax liability: Combine your crypto-related capital gains, losses, and income with other taxable income to calculate your total tax owed for the year.
Read the full UK crypto tax guide to find out more.
How BKL can help
Our specialist crypto tax accountants will help you to make well informed decisions about your cryptocurrencies.
You’ll receive clear and accurate advice on the tax implications of buying and selling cryptocurrencies, mining cryptocurrencies, arbitraging exchanges and margin trading as well as transferring back into fiat currencies and ensuring that all disclosures are made precisely and promptly to HMRC. This will provide peace of mind and the assurance that you’re complying fully with the law.
Get in touch today for a chat about how we can help you.