Cryptocurrency and Bitcoin

1 June 2018

We have all heard a lot in the media about Bitcoin and how some have made their millions but have you thought about how it’s taxed?

As Bitcoin is still relatively new, there is only some guidance from HMRC, please click on the following link for HMRC’s guidance https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies

The starting point will be to look at who holds the currency.  Is it a limited company, partnership or an individual?  Once this has been established, then the tax treatment can be reviewed further, but also brings with it further questions.  Why is it held?  Is it a trade or an investment, or is it gambling?  Whatever the treatment, it is important that full records are kept as HM Revenue and Customs can ask to see these if a tax return is enquired into.

The general HMRC view, is to look at the transactions on a case by case basis to determine whether the transactions should be taxed as income or capital gains. If your business accepts Bitcoin as payment, then revenue recognition and profit calculation will not change.

Gains and losses on trading on Bitcoin are taxable income. However, claiming losses can be contested by HMRC. HMRC summarise the situation like this;

The relevant legislation and case law will be applied to determine the correct tax treatment. Therefore, depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable. For example, gambling or betting wins are not taxable and gambling losses cannot be offset against other taxable profits.

For Corporation Tax, we are told that ‘the profits or losses on exchange movements between currencies are taxable’ and that the general rules apply to Bitcoin as to other transactions, so HMRC see no need for specific rules on cryptocurrencies.