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With crypto’s rise, HMRC has made it clear: if you’re making money from digital assets, they want their cut. Whether trading, mining, or earning from staking, crypto income and gains are taxable in the UK. But what happens if you skip out on paying those taxes?
From penalties to potential audits, ignoring your tax obligations on crypto could cost you big. In this post, we’ll break down what counts as taxable income, how crypto taxes work, and the risks of not reporting your earnings.
What happens if you don’t pay your crypto taxes?
If you don’t pay taxes on your crypto earnings in the UK, you’re risking more than a slap on the wrist. HMRC considers unpaid crypto taxes a serious issue, with penalties, interest, and even investigations possible. As the UK tightens its grip on crypto tax rules, ignoring your crypto tax liability could lead to bigger headaches down the line.
In other words, skipping crypto taxes is a risky game. Here’s what could happen if you don’t comply:
- Penalties and interest – HMRC may dish out penalties for late or underreported income, with interest piling on top.
- Investigations and audits – Unreported gains or crypto profits could trigger an audit, where HMRC digs into your tax affairs to uncover any missing income.
- Reputational impact – Consistent non-compliance can lead to further scrutiny of all your tax filings, even those unrelated to crypto. Once flagged, your financial records might face closer inspection in the future.
Types of crypto income and how they’re taxed
Crypto might feel like the Wild West of finance, but in the UK, it’s very much under the tax authorities’ watchful eye. HMRC considers crypto gains – whether through trading, investing, mining, or selling for profit – as part of your taxable income.
In tax terms, crypto transactions are no different from any other financial trade, and crypto assets are treated as property, making them liable for income tax or capital gains tax.
So while crypto might seem like “internet money,” your earnings and gains have real tax implications. Failing to pay tax on cryptocurrency can cost you, just like any other unreported gains.
What types of income are taxed?
Not all crypto activities are taxed the same, so it’s worth knowing which impacts your tax affairs:
Trading and investing
If you’re actively trading or holding crypto as a personal investment, your gains count as taxable gains and are taxed under Capital Gains Tax. This includes profits from exchanges on major platforms, like buying and selling Bitcoin, Ethereum, or other exchange tokens.
Mining or staking
Income from mining cryptocurrencies, such as Bitcoin or Ethereum, is treated as additional income and taxed at your income tax rate. Mining income or staking income can also impact your personal allowance.
Earning from airdrops or forks
Airdrops or coins from a hard fork count as taxable income if they’re not given as a gift. They’re part of what HMRC considers “miscellaneous income.”
What are the tax implications of different crypto transactions?
Every type of cryptocurrency transaction can have different tax implications:
Crypto trading
Whenever you buy or sell crypto on an exchange, it’s treated as a capital asset trade. Selling crypto for fiat currency (like GBP) or swapping one crypto token for another also counts as a taxable event.
Moving crypto between wallets
Shifting crypto between your private wallets isn’t taxable. However, any profits made from trades using these wallets will still be taxed.
Mining and staking rewards
Earnings from mining or staking are treated as regular income. If you’ve had to pay for things like transaction fees or acquisition costs, these may help reduce your taxable gains.
Managing your crypto tax obligations
Want to avoid penalties and stay in control of your finances? You’ve got to stay on top of your crypto taxes.
How can I calculate my crypto taxes?
Understanding your allowances is the first step in working out your crypto taxes:
- Personal Allowance – Every year, you’re entitled to a tax-free personal allowance – currently up to £12,570. This covers your total income, including crypto earnings.
- Capital Gains Allowance – Alongside your personal allowance, you also get a capital gains allowance – typically around £6,000. Profits from crypto up to this amount are tax-free.
Why should you keep accurate records for your crypto tax compliance?
You need to report any crypto gains or income on your Self Assessment tax return, plus accurate records for each crypto transaction.
These should include:
- Dates of transactions
- Types and amounts of digital assets involved
- GBP value at the time of each transaction
- Transaction fees or acquisition costs
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