Bitcoin was the first cryptocurrency and it created a new industry which is not regulated and the taxation of gains and losses has not been tested in any legal cases.
This article is an outline of how we believe the tax office will look at taxing this new market.
A cryptocurrency is not yet officially recognised as money in UK law but the tax office has stated that the taxation will depend on the activity of the person involved. A person’s activities could be seen as investing, which would lead to capital gains tax, or trading, which would be income tax on profit.
If you are seen as trading then you’d be liable to income tax and possibly national insurance. It doesn’t matter if you just have one transaction. There is a tax case where one million toilet rolls were purchased and sold in a single transaction and this was seen as “an adventure in the nature of trade”. It is the motive or intention from the outset which is critical.
Companies can also hold bitcoins and the principles are the same. Companies however, do not pay capital gains tax. They pay corporation tax but unlike individuals, do not benefit from an annual tax free allowance. If you have specific questions, please contact us directly, as every circumstance is different.
Image from Flickr by Zach Copley.