AS cryptocurrency becomes more mainstream a growing number of people are finding themselves facing increasingly complex tax situations.
Whether you bought the crypto yourself, mined it or received in payment for work, it’s likely you’ll be liable to pay tax to HMRC on some or all of it.
But where do you start? The UK’s tax laws are notoriously complex, and people often turn to a specialist (ie expensive!) accountant when it comes to organising their return.
But a new service set up by a leading crypto exchange as been expanded to the UK aimed at helping people navigate the pitfalls of their Bitcoin tax bill.
And the best bit? It’s completely free to use.
Launched by Crypto.com, the service is currently only available to people living in the United Kingdom, United States, Australia and Canada.
When you sign up you’re asked to fill in a few basics, such as your country, the currency you’re using and a few other details about your accounting preferences, such as the cost basis method.
At the time of joining I was only given the option to choose share pooling in this section.
You’re then taken to an overview page which details your connected wallets and exchanges, your transactions and gives you the ability to generate a tax report.
You can choose to connect and sync your wallets and exchanges to the app using an API or you can manually upload your transactions.
In my view it makes sense to use an API if the option is offered by your exchange or wallet as it enables you to automatically track your holdings.
Once you’ve filled in these sections, you’ll be able to view a summary of your taxable and nontaxable income further down the page.
This includes income from airdrops, mining, forks, crypto received in payment or even given as rewards.
The UI is clean and extremely straightforward to use and has the potential to be immensely helpful to anyone who is beginning to lose track of their cryptocurrency tax liability.
The service has been designed with the help of professional tax advisers and the calculation logic follows the current guidance and laws for filing cryptocurrency taxes in the UK, according to Crypto.com.
The Crypto.com team says the service “makes it easy for you to file complicated crypto taxes at no cost. It enables you to quickly generate organised crypto tax reports that include transaction history, and records of capital gains and losses.”
Crypto.com does issue a disclaimer about the service to cover their back and there’s no doubt that if your crypto portfolio is complicated it might be best to seek professional help.
But for a lot of people, the service has the potential to be an incredibly useful tool and the number of people needing services such as this will continue to grow in the future.
The service may be free for now, but I’d be surprised if it doesn’t become a paid-for app in the future.
Even if you just use it as guide, the tool has the potential to give people a much clearer understanding of their tax position when it comes to their Bitcoin and cryptocurrency portfolio.
After all, anyone who holds, trades or earns cryptocurrency needs to consider the tax implications of doing so and how it relates to the laws in your country.
In the UK there are several areas of tax to consider that may be particularly relevant to crypto.
Do I need to pay Capital Gains Tax on my Bitcoin and cryptocurrency when I sell it?
The short answer is yes. Gains above the tax-free allowance are chargeable at the rate of 20% for a higher rate taxpayer and 10% if you’re paying the basic rate of tax.
This is the current rate and is subject to change, along with the amount of gain you can squirrel away without paying anything to the taxman.
Read our in-depth feature on UK Capital Gains Tax and how it relates to cryptocurrency.
Can I avoid Capital Gains Tax on my Bitcoin and cryptocurrency?
There are several ways that you can mitigate your Capital Gains Tax liability in the UK that are perfectly legal.
They can be applied to your cryptocurrency portfolio, but also other assets that you may hold.
We’ve written at length about how to avoid capital gains tax on Bitcoin.
It my Bitcoin and crypto portfolio subject to Inheritance Tax?
Another area of UK tax law that applies to crypto along with the rest of your portfolio is Inheritance Tax.
Do you need to pay it on Bitcoin and can your cryptoassets be inherited by your loved ones?
We answer these questions in this deep dive into Inheritance Tax and the implications for your digital currency.
Related link: What happens to my cryptocurrency when I die?
Can I avoid paying Inheritance Tax on my cryptoassets?
Like Capital Gains Tax, there are myriad ways in which you can reduce your Inheritance Tax liability on your crypto holdings, especially if you plan in good time.
This applies to your other assets as well as the UK Government allows several gifts and exemptions which can be used to cut your bill.
We’ve taken a detailed look at what you can do to reduce Inheritance Tax on your Bitcoin.
Is the Crypto.com tax app for me?
The Crypto.com tax service, while useful, may not be for everyone. Some people are happy to pass the work to a trained professional to avoid any potential for error.
Getting your tax wrong in the UK can potentially trigger an HMRC probe into your finances which can be an arduous process and can lead to a large fine or even jail time.
Do I need a specialist accountant to work out my cryptocurrency taxes?
As Bitcoin adoption grows so will the need for specialised financial services such as accountants.
Some people will be able to work out their own tax, especially if their crypto dealings are straight forward, while others will need to employ a pro to avoid falling foul of the law.
Find out more about whether you might need an accountant to help with your crypto taxes.
The Crypto.com tax app will likely be rolled out in further jurisdictions as adoption increases.
It’s a very useful service and one that you should take advantage of while it’s still free.
If nothing else, it will focus minds on the need to treat crypto in the same way as mainstream assets or financial income when it comes to tax.
Adam is the founder of The Crypto Adviser which offers experts guides and reviews on all things related to Bitcoin and cryptocurrency.
Adam is Diploma for Financial Advisers (DipFA) Level 4 qualified, a Member of the London Institute of Banking and Finance (MLIBF), and has worked for many years as a journalist and PR consultant, having studied with the National Council for the Training of Journalists (NCTJ).