How HMRC treats cryptoassets: a plain guide

Does HMRC treat crypto as money?

No. The HMRC Cryptoassets Manual states that HMRC does not consider cryptoassets to be currency or money. In practice, most people hold tokens as a form of property, and the tax follows from that.

HMRC also says the tax treatment depends on what the holder actually does, not on what a token is called. Buying and holding, trading, earning tokens and running a business can all lead to different results.

This guide explains the concepts only. It cannot tell you how your own case will be taxed, because that depends on the facts. AFE reviews those facts before anything is reported.

Which taxes can apply to cryptoassets?

For most individual investors, the main tax is Capital Gains Tax when they dispose of tokens. Income Tax can apply when tokens arrive as a reward or as pay, rather than as a purchase.

A small number of people buy and sell so often and so formally that HMRC may see a trade. That is uncommon, and the manual has a section on what trading means. Companies holding tokens pay Corporation Tax rather than Capital Gains Tax.

Where tokens have already been taxed as income, HMRC guidance says Capital Gains Tax is not charged again on that same value. A later rise in value can still be a gain when you dispose of them.

What counts as a disposal?

HMRC guidance on selling cryptoassets lists several kinds of disposal. Many people are surprised that some of them involve no pounds at all.

• Selling tokens for pounds or another currency.
• Exchanging one token for a different token, including stablecoins.
• Using tokens to pay for goods or services.
• Giving tokens away, although gifts to a spouse, civil partner or charity are generally treated differently.

How is a gain worked out?

A gain is broadly the difference between what a token cost and what you received for it, valued in sterling. Some allowable costs can be deducted, and losses can be set against gains once they have been reported.

Tokens of the same type are usually grouped into a pool with an average cost. Separate matching rules apply to the same token bought on the day of a sale or within 30 days after [VERIFY WITH HMRC / ADAM].

There is an annual tax-free amount for gains, and the figure has changed in recent years [VERIFY WITH HMRC / ADAM]. AFE checks the current figure for each tax year rather than relying on an old one.

How are staking, airdrops and mining treated?

HMRC guidance on receiving cryptoassets says tokens from mining, staking and lending generally count as income. If you are not trading, they are usually treated as miscellaneous income.

Airdrops have their own page in the manual. The treatment depends on whether you did something in return for the tokens, such as providing a service.

A small allowance for trading and miscellaneous income may cover some receipts, with reporting limits linked to it [VERIFY WITH HMRC / ADAM]. When you later sell tokens you received as income, the sale is a separate disposal.

What about NFTs and DeFi?

NFTs are not named in the manual pages on what a cryptoasset is, so there is less specific guidance. Buying an NFT with tokens can itself be a disposal of those tokens, and selling an NFT can produce a gain.

DeFi lending, liquidity pools and staking have their own section in the manual. The answer often turns on whether you keep beneficial ownership of the tokens you deposit, and on what you get back.

Because DeFi arrangements vary, AFE looks at the terms of each protocol you used before deciding how the transactions should be reported.

What may HMRC look at for each activity?

The table below sets out common activities, the question HMRC may ask and the records that help answer it. It describes concepts, not outcomes for a particular person.

What records do I need?

HMRC puts the responsibility for records on you, not on the exchange. Exchanges can close, or keep data only for a short time, before a return is filed.

• The type of token and the date of each transaction.
• Whether it was a purchase, sale, swap or receipt.
• The number of units and the sterling value at the time.
• A running balance of units held and pooled costs.
• Bank statements, wallet addresses and exchange downloads.

Exchange reports are useful, but HMRC notes they are not tax calculations and do not track pooled costs.

How are crypto gains reported?

Gains are usually reported on a Self Assessment return, which has a cryptoasset section from recent tax years [VERIFY WITH HMRC / ADAM]. Some people can use the Capital Gains Tax real-time service instead.

The tax year runs from 6 April to 5 April [VERIFY WITH HMRC / ADAM]. Online returns are usually due by 31 January after it ends [VERIFY WITH HMRC / ADAM]. Amounts are reported in pounds sterling.

What if I have unreported gains from earlier years?

HMRC has a disclosure route for unpaid tax on cryptoassets from earlier years, called the Cryptoasset Disclosure Service. Its guidance on selling cryptoassets points to it.

Whether that route suits you depends on your circumstances. AFE can rebuild past transactions from your records first, so you know what you are disclosing.

Exchanges are also bringing in wider reporting to tax authorities under the Cryptoasset Reporting Framework [VERIFY WITH HMRC / ADAM]. Acting on your own terms is usually easier than waiting.

How does AFE help crypto investors?

AFE turns exchange and wallet exports into a reconciled transaction history, then works out gains and income for each tax year. The crypto tax reporting service covers individuals.

Businesses that hold or receive tokens can use business accounting for crypto companies. The work is led by Adam Feyzi FCCA, and you can see the wider crypto and blockchain hub.