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Posted March 31, 2025

Tax Implications of Cryptocurrency: What HMRC Expects You to Report

In recent years, cryptocurrency has evolved from a niche investment to a mainstream financial asset. As digital currencies like Bitcoin, Ethereum, and countless others become increasingly popular, HMRC has developed clearer guidelines on how these assets should be taxed. If you’ve dabbled in crypto, understanding your tax obligations is essential to avoid penalties and ensure compliance.

How HMRC Views Cryptocurrency

HMRC does not consider cryptocurrencies to be currency or money. Instead, they’re treated as:

  • Property for Capital Gains Tax purposes
  • Investments similar to other non-cash assets
  • Potentially income in certain circumstances

This classification determines how and when you’ll be taxed on your crypto activities.

Capital Gains Tax on Cryptocurrency

Most individuals who buy and sell cryptocurrency will need to pay Capital Gains Tax on any profits. You’ll need to report gains when you:

  • Sell cryptocurrency for currency (like GBP)
  • Exchange one cryptocurrency for another
  • Use cryptocurrency to pay for goods or services
  • Give cryptocurrency away to another person (unless it’s to your spouse or a charity)

The tax is calculated on the profit you make, not the total amount. For the 2024/25 tax year, the Capital Gains Tax rates for cryptocurrency range from 10% to 24% depending on whether you are a basic or higher rate tax payer and when you sold your cryptocurrency.

Remember, you have an annual tax-free allowance (£3,000 for the 2024/25 tax year) for capital gains before any tax becomes due.

Income Tax on Cryptocurrency

In some cases, HMRC may view your cryptocurrency activities as a source of income rather than capital gains:

  • Mining operations: Rewards from mining are typically subject to Income Tax
  • Staking and yield farming: Returns from these activities are generally considered income
  • Airdrops: Free tokens received may be taxable as income, depending on whether something was done to earn them
  • Regular trading: If HMRC determines you’re trading as a business rather than investing, Income Tax will apply instead of Capital Gains Tax

Income Tax rates range from 20% to 45%, depending on your total income, making proper classification crucial for tax planning.

Bookkeeping vs AccountancyRecord-Keeping Requirements

HMRC expects detailed records of all your cryptocurrency transactions, including:

  • The date of each transaction
  • The type of transaction (buying, selling, exchanging, etc.)
  • The value of the cryptocurrency in GBP at the time of transaction
  • The number of units involved
  • The cumulative total of investment units held
  • Bank statements and wallet addresses

Without proper records, calculating your tax liability becomes challenging, and HMRC may estimate your tax bill, potentially resulting in higher charges.

Common Misconceptions

Many cryptocurrency investors fall prey to misconceptions that can lead to tax complications:

  1. “Crypto-to-crypto trades aren’t taxable”: Each exchange is a disposal for tax purposes, even if you haven’t converted to a government issued currency.
  2. “HMRC can’t track my crypto”: With advancing blockchain analytics and exchange reporting requirements, HMRC has increasing visibility into cryptocurrency transactions.
  3. “I only need to report when I cash out to my bank”: All disposals, including exchanges between cryptocurrencies, are reportable events.
  4. “My losses don’t need to be reported”: Reporting losses is beneficial as they can be offset against future gains.

Reporting Deadlines

For the 2024/25 tax year, you must report cryptocurrency transactions by:

 

  • 31 January 2026 if filing online
  • Earlier deadlines apply for paper returns

If you need to register for Self-Assessment to report cryptocurrency transactions, you should do so by 5 October 2025.

How We Can Help

Navigating cryptocurrency taxation can be complex, particularly with changing regulations and the technical nature of blockchain transactions. Our tax team can:

  • Review your cryptocurrency portfolio and transaction history
  • Determine the correct tax treatment for your specific situation
  • Implement strategies to legally minimise your tax liability
  • Ensure complete and accurate reporting to HMRC
  • Help you maintain proper documentation for future reference

Useful HMRC links

https://www.gov.uk/guidance/check-if-you-need-to-pay-tax-when-you-sell-cryptoassets

https://www.gov.uk/guidance/check-if-you-need-to-pay-tax-when-you-receive-cryptoassets

 

Don’t wait until the filing deadline approaches. Contact us today for a consultation to ensure your cryptocurrency activities are tax-compliant and optimised for your financial situation.