Accounting for blockchain and Web3 companies in the UK

What makes a Web3 company different to account for?

A Web3 company still files accounts and a Corporation Tax return like any other UK company. The difference is that part of its money, income or costs moves on a blockchain rather than through a bank.

Each token movement has to be turned into a sterling figure on a known date. Wallets, exchanges and protocols rarely produce records in the form an accountant needs, so the ledger has to be built.

HMRC says it taxes cryptoassets based on what the holder does with them. The business section of the Cryptoassets Manual sets out how that applies to companies.

How is a token treasury taxed inside a company?

Companies do not pay Capital Gains Tax. Gains on tokens are usually charged to Corporation Tax, and the Corporation Tax pages of the manual cover several possible routes.

Depending on the facts, tokens may fall under the chargeable gains rules, the intangible fixed assets rules or, more rarely, the loan relationship rules. Tokens held as trading stock are dealt with inside trading profits.

Which route applies affects the timing and the amount of tax. AFE reviews how and why the company holds each type of token before the year-end accounts are prepared.

What if customers pay you in crypto?

HMRC guidance on business income paid in cryptoassets says tokens accepted from customers in an existing trade form part of trading profits. The same applies when tokens are used to pay suppliers.

In practice, each sale is recorded at its sterling value when it happens. If the company keeps the tokens and their value later moves, that movement is a separate question for the accounts and the tax return.

Price feeds can differ between sources. The company should choose one method and apply it consistently, and AFE documents that method so it can be explained in any enquiry.

Is VAT due when you are paid in tokens?

The manual's VAT page says VAT is due in the normal way on goods or services sold for tokens. The value is the sterling equivalent at the time of the sale.

The same page treats some activities differently, such as mining rewards and certain fees for arranging token transactions. HMRC describes its position as provisional and open to change.

Whether the company must register for VAT depends on its taxable turnover against the registration threshold [VERIFY WITH HMRC / ADAM]. AFE checks the threshold and the treatment of each income stream before a return is filed.

Can you pay staff and contractors in tokens?

You can, but the tax does not disappear. HMRC guidance on receiving cryptoassets says tokens given as pay count as employment income.

Where the tokens are readily convertible, the employer usually has to estimate their value and put it through PAYE. That means Income Tax and National Insurance may be due through payroll, not just on the employee’s own return.

Contractors paid in tokens are a different case, but the company still needs to record what it paid in sterling. AFE can add token payments to payroll and the books.

Which token events raise accounting questions?

The table lists events that commonly come up in Web3 companies and the question each raises. It points to the relevant manual area and does not state an outcome for any company.

How are tokens valued at the year end?

Year-end accounts need a sterling value for any tokens the company still holds. The value shown, and whether changes in value reach the profit and loss account, depend on the accounting policy chosen.

The tax rules that apply to the tokens can follow a different pattern from the accounts. HMRC expects a reasonable valuation method that is used consistently.

AFE agrees a pricing source and a valuation date with you. The same approach is then used each year, so movements are comparable.

What records should a Web3 company keep?

The books need to show every token the company controls, where it is held and what it was worth in sterling. HMRC record-keeping guidance expects dates, units, values and a running balance.

• A list of every wallet address and exchange account the company controls.
• A sterling ledger for each wallet, reconciled to the balance sheet.
• Gas and network fees, recorded against the transactions they relate to.
• Invoices and contracts for any income or payments made in tokens.
• Board decisions on treasury policy, staking and token issues.
• A clear split between company wallets and founders’ personal wallets.

What should a Web3 founder ask an accountant?

A good first conversation covers how the accountant will handle your data and your judgement calls. It is worth asking about the points below.

• How they will turn your wallet and exchange data into sterling entries.
• Which Corporation Tax rules they think apply to your tokens, and why.
• How they will treat tokens paid to staff or contractors.
• Which software they use for crypto data. [CONFIRM: which crypto tax software AFE supports]
• Who reviews the treatment before the accounts are signed.

How does AFE work with blockchain and Web3 companies?

AFE keeps the books, prepares statutory accounts and files Corporation Tax and VAT returns for UK companies that use tokens. The team reconciles wallets to the accounts and records how each token type is treated.

See business accounting for crypto companies or the crypto and blockchain hub. Founders with personal holdings can use crypto tax reporting. The work is led by Adam Feyzi FCCA.