Cryptocurrency, often dubbed “Money 2.0,” is a type of digital currency that, unlike traditional currencies like GBP, operates on a decentralized network. This decentralization is a significant factor in the rising popularity of cryptocurrencies, as it offers a sense of security and independence from traditional financial systems.

Bitcoin and Ethereum are the most well-known cryptocurrencies, frequently making headlines due to their fluctuating prices. However, the world of cryptocurrency is vast, with thousands of different types, each based on unique technologies and serving various purposes.

Cryptocurrencies can be transferred, stored, traded electronically, and even used to purchase goods and services online. It’s important to note that HMRC (Her Majesty’s Revenue and Customs) doesn’t recognize cryptocurrency as traditional money or currency, which has implications when it comes to taxation.

HMRC uses the terms “crypto” and “crypto assets” to cover not just the more familiar crypto coins but also utility and security tokens. The rapid growth of this sector has attracted widespread interest, and both individuals and companies have seen significant gains from their crypto investments.

How is Crypto Taxed?

The taxation of cryptocurrency depends on several factors. Typically, when crypto is held personally, any gains are subject to Capital Gains Tax (CGT). However, the crypto world involves more than just buying and selling.

For instance, cryptocurrencies can also be acquired through mining or staking, and the method of acquisition affects how they are taxed. Even if mined crypto hasn’t been sold, it may still be subject to UK taxes, specifically income tax.

A common misconception is that crypto must be sold for traditional currency to incur UK taxes. In reality, any disposal of a crypto asset—whether it’s sold, gifted, exchanged for another crypto, or used to purchase goods or services—can trigger a tax liability. While most disposals would likely fall under CGT, there are situations where HMRC might classify the transaction as subject to income tax, reflecting the evolving nature of crypto taxation.

Given that this is a rapidly changing sector, tax treatments for cryptocurrency continue to develop, and HMRC’s guidelines may change as the industry evolves.

Can My Limited Company Invest in Crypto?

Yes, a limited company can invest in cryptocurrency. However, whether this is the most tax-efficient strategy depends on your specific circumstances and future plans.

CANGAF, like other accountancy firms, doesn’t provide investment advice. It’s crucial to conduct thorough research before making any investment decisions.

Just like with any investment, the platform used for crypto investments must be in the company’s name to ensure the holdings are recognized as company assets. If the platform is registered under a personal name, any associated payments might be considered a director’s loan, and any gains would be taxed personally, not through the company.

What if the Investment Fails?

Not all crypto projects succeed, and many can fail despite significant investment. In such cases, you might be able to make a negligible value claim, which treats the asset as if it has been disposed of due to its worthlessness or diminished value.

However, just because an asset has lost value in the eyes of the investor doesn’t mean HMRC will automatically agree. For example, if you lose access to your crypto due to theft or forgetting a password, HMRC may not consider this a disposal, as it doesn’t change your ownership rights or the crypto’s value.

How CANGAF Can Help

At CANGAF, we work with a diverse range of self-employed individuals and businesses, each with unique needs and circumstances. This is especially true for those involved with cryptocurrency. We can help you navigate the complex UK tax laws surrounding crypto and offer advice on making your business more tax-efficient.

Whether you need assistance with:

• Understanding the tax implications of crypto, both personally and for a limited company.
• Pooling crypto for capital gains tax purposes.
• Preparing self-assessment tax returns that include crypto gains and trading.
• Managing crypto trading through a limited company.

We understand that you’d rather focus on running your business than worry about the intricacies of crypto tax law. Let us handle the details for you.

If you have questions about cryptocurrency and taxes, don’t hesitate to reach out. Call us today at 01204 859315 or Got questions? Request a no-obligation call with a tax advisor.