With the 31 January 2025 Self-Assessment deadline just gone, it’s a reminder to address those questions around crypto taxation. Many accountants shy away from crypto assets due to their complexity, but understanding your tax obligations doesn’t have to be difficult.
If you’ve been trading, holding, or earning cryptocurrency, HMRC expects you to report it correctly. Here’s what you need to know.
Do you owe tax on your crypto?
HMRC treats cryptocurrency as a taxable asset, and your tax liability depends on how you acquire, hold, and dispose of it.
Capital Gains Tax (CGT) on crypto
You may need to pay Capital Gains Tax (CGT) if you profit from disposing of crypto assets. This applies when you:
- Sell cryptocurrency for a profit – even if you convert it to fiat currency like GBP.
- Trade one cryptocurrency for another – swapping Bitcoin for Ethereum, for example.
- Use crypto to purchase goods or services – if the value of your crypto has increased since you acquired it. Gift crypto to someone other than your spouse or civil partner – as gifts are usually considered disposals for tax purposes.
I contacted FWJ after receiving an investigation that was launched by HMRC due to a false R&D claim submitted by morgan woods. We weren’t aware that we weren’t eligible and was lied to by Morgan woods who took a high fee (which we can’t get back). We were worried we would be fined up to 100% of the claim but with the help of Phoebe at FW&J we successfully appealed this and only had to pay the amount we claimed back which we were happy to do. Unfortunately there are lots of companies like morgan woods out there who are lying to people in order to make money from claims. We really had no idea at the time as we were told they were “experts and had a close relationship with HMRC” thankfully this is now all sorted and we will be cautious going forward of these kinds of companies.
A Client we defended from an HMRC Investigation
Income tax on crypto
Certain crypto-related activities can also trigger Income Tax liability. HMRC considers crypto earnings taxable income if you:
- Receive salary or freelance payments in cryptocurrency.
- Earn rewards from staking or mining crypto.
- Claim airdrops that come with conditions attached.
In these cases, the income is taxed at your standard Income Tax rate and may also be subject to National Insurance contributions.
When do you need to declare crypto?
If you had taxable crypto transactions between 6 April 2023 and 5 April 2024, they must be included in your Self-Assessment tax return by 31 January 2025. Failing to declare taxable crypto gains or income can lead to penalties, interest, and possible HMRC investigations.
What happens if you don’t declare crypto tax?
HMRC is actively tracking crypto transactions and has agreements with exchanges to obtain user data. If you fail to declare taxable gains or income, you could face:
- Late filing penalties for missing the Self-Assessment deadline.
- Tax penalties of up to 100% of the tax due if HMRC believes there was deliberate non-compliance.
- Interest charges on any unpaid tax.
If you’re unsure whether you’ve met your tax obligations, it’s best to address the issue proactively before HMRC contacts you.
Key Takeaway: Don’t Ignore Crypto Tax
Many people underestimate how far HMRC’s reach extends when it comes to digital assets. Even if you’ve only made a few trades, you may have tax obligations. If you need help with crypto tax compliance, HMRC investigations, or penalty mitigation, get in touch with our Tax Disputes team at FWJ.
How our tax team at FWJ can help
At Francis Wilks & Jones, we are uniquely placed to help you with regard to any tax questions or claims. Our team is headed up by Andy Lynch who previously spent 18 years working in the special investigations team at HMRC before joining us at FWJ.
Andy and his team are dedicated to providing the highest level of service to help you overcome any challenges you are facing. Call today
