21 Mar 2022

Accounting for Crypto

Insights, Publications

BKL partner and cryptocurrency accounting specialist Jon Wedge has contributed to Accounting Technician Magazine’s article on cryptocurrencies.

Accounting Technician Magazine is published by the Association of Accounting Technicians (AAT). The article, Accounting for Crypto, appeared in the March/April 2022 issue and was written by Santhie Goundar.

‘It’s increasingly likely you may come across a client involved with crypto, peer-to-peer lending or carbon credits. But what are they, and how should you account for them?’

The article includes sections on cryptocurrencies, tax and NFTs (non-fungible tokens) with definitions and comments from Jon:

‘“Cryptocurrencies are a form of digital asset,” BKL partner Jon Wedge says. “Each digital token or coin has a value, which can be passed on, bought, sold, or exchanged for goods and
services. It runs on a technology called blockchain, which is basically a ledger – a record of every single transaction that any single digital coin has ever been involved in. Generally, you can trace any coin from the moment it was mined, or came into being, to wherever it is now, and wherever it’s been fractionalised. It’s a complete, immutable, audit trail.”

The Ethereum blockchain is slightly different to Bitcoin’s, Wedge adds – it “allows people to build applications on top of it, or other tokens – such as other crypto tokens or NFTs”.’

‘On tax, Wedge says HMRC is catching up – and there is now specific guidance (such as HMRC’s cryptoassets manual) on how to account. One of the common traps people fall into, he says, is thinking a tax liability only arises when cryptocurrency is converted back into fiat currency. “Tax arises for any token-to-token transaction that occurs. If you change Bitcoin to Ethereum, for example, that’s a disposal and acquisition of a new asset for capital gains tax purposes.”’

‘Often associated with digital files, especially digital art, NFTs are units of data stored on a blockchain (usually the Ethereum blockchain), which can be traded. Unlike cryptocurrency, each token is uniquely identifiable and may represent a different underlying asset, which in turn may have a different value.

“A Bitcoin is interchangeable with another Bitcoin, but an NFT is a unique token – proving ownership,” Wedge explains. “For an NFT that’s attached to an image – anyone can usually view the image, but the NFT shows who owns it.”’

The full article is available to read here.

BKL’s tax specialists are able to advise clearly and accurately 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 ensure that all disclosures are made precisely and promptly to HMRC. This will provide peace of mind and the assurance that you are complying fully with the law.

You can find out more on our cryptocurrency accounting and tax page or contact us using our enquiry form.