Crypto Tax for the Self-Employed

If you're earning crypto through mining, staking or DeFi and you're self-employed - or wondering whether you should be - the tax picture is messier than most guides admit. The core question isn't just "is this taxable?" (it almost always is). It's how it's taxable, because that determines your rate, whether you owe National Insurance, what you can deduct, and how you report it.

This guide covers the key distinctions HMRC makes, what they mean in practice, and how Koinly can take the admin out of it.

Is crypto income different from crypto gains?

Yes, crypto income is different from crypto gains and the difference matters a lot.

When you buy Bitcoin and sell it later for a profit, that's a capital gain - taxed under Capital Gains Tax (CGT). For 2025/26, the CGT annual exempt amount is £3,000, and the rates on crypto are 18% (basic rate) or 24% (higher rate).

But when you earn crypto - through mining, staking, DeFi yield, or as payment for services - HMRC treats it as income. Income is taxed at your marginal rate: 20%, 40% or 45% depending on your total earnings. The personal allowance for 2025/26 is £12,570, and the basic rate band runs from £12,571 to £50,270.

Income tax rates are generally higher than CGT rates, which is why getting the classification is important. Misreporting capital income as a gain - or vice versa and getting it wrong can be costly.

There's a further wrinkle: once you've paid income tax on crypto you received as income, you also acquire it with a cost basis equal to the value you were taxed on. So when you later sell it, you're only taxed on any further gain above that original value. Double taxation isn't the intention - but the record-keeping to prove it is your responsibility.

Mining: trade or miscellaneous income?

This is where most people get confused. HMRC doesn't treat all miners the same way.

Whether mining amounts to a taxable trade depends on factors such as degree of activity, organisation, risk and commerciality. These are the "badges of trade" - a standard set of tests HMRC applies across self-employment generally.

HMRC considers that most individuals will fall short of meeting the badges of trade, so returns are only expected to be charged to tax as trading income in exceptional circumstances.

In practice, most individual miners - someone running a few GPU rigs at home, or a small mining farm - will be classed as generating miscellaneous income, not trading profits.

The distinction has real consequences:

• Miscellaneous income is subject to income tax but not National Insurance contributions (NICs).

• Trading income - if HMRC classifies your mining as a trade - is subject to income tax and Class 4 NICs (and potentially Class 2 NICs too). It also means you need to register as self-employed with HMRC and file a Self Assessment.

Allowable expenses used in the income-generating activity, such as additional electricity used in mining, can be deducted from the miscellaneous income. That includes electricity costs, hardware depreciation (subject to the relevant capital allowances rules), and other direct costs - but you'll want a tax adviser to confirm exactly what qualifies for your situation.

Ex. Sarah mines Ethereum Classic as a side activity alongside her full-time job. Over 2025/26, she receives tokens worth £6,800 at the time of receipt. After deducting £1,200 in electricity costs, her net miscellaneous income is £5,600. She reports this through Self Assessment and pays income tax on it. Because it's miscellaneous income rather than trading income, she doesn't owe NICs.

If Sarah later sells those tokens for £9,000, she has a further capital gain of £2,200 (£9,000 minus the £6,800 she was already taxed on). That gain goes through CGT, not income tax again.

The £1,000 trading allowance

There is a £1,000 trading and miscellaneous income allowance each tax year, and GOV.UK confirms that crypto income counts towards it.

If your total miscellaneous income from crypto - across mining, staking, and any other sources - comes to less than £1,000, you don't need to report it or pay tax on it. If it's over £1,000, you either claim the allowance against your gross income (meaning you only pay tax on amounts above £1,000) or deduct your actual allowable expenses, whichever is more beneficial.

You can't claim both. And the allowance cannot be used if you're also deducting expenses from self-employed income in the same tax year.

Staking gets the same treatment

HMRC's guidance on staking largely mirrors its treatment of mining. HMRC's Cryptoassets Manual (CRYPTO21200) says that if the activity does not amount to a trade, the pound sterling value at the time of receipt of any tokens awarded is taxable as miscellaneous income, with any appropriate expenses reducing the amount chargeable.

Whether staking amounts to a trade follows the same badges-of-trade analysis as mining. For most people - staking ETH on a hardware wallet, using a pooled service, or locking tokens on an exchange - the activity won't meet that bar.

That said, the tax picture for staking is one area where HMRC guidance is still evolving. A 2023 consultation on DeFi lending and staking taxation closed without resulting legislation, and the question of how to treat more complex staking arrangements remains live. As of 2025, no draft legislation had been published for the proposed changes following the DeFi consultation.

The practical takeaway: for most stakers, income tax on receipt (as miscellaneous income) is the current position. Record the sterling value of every reward on the date it lands in your wallet. That's your taxable income figure

DeFi income: yield farming, liquidity pools and lending rewards

DeFi activity covers a broad range of things - lending, providing liquidity, yield farming, protocol rewards - and HMRC hasn't issued detailed specific guidance for every type. The general principle is that where you receive tokens as a return on an activity, those tokens are likely to be income.

On the basis of HMRC's guidance on DeFi staking and lending, most staking and lending rewards are expected to be treated as income rewards - taxed as miscellaneous income subject to income tax, where the activity does not amount to a financial trade.

Where DeFi gets more complicated is when transactions involve disposals. Removing liquidity from a pool, swapping tokens, or receiving LP tokens in exchange for deposited assets can all be treated as disposals by HMRC, triggering CGT as well as any income tax already owed on rewards received along the way. You can end up with income events and capital events arising from the same protocol activity.

Staking income is reportable in Box 17 of the SA100 Self Assessment tax return under "Other taxable income," based on HMRC's updated 2024-25 return guidance. DeFi income follows the same route unless it qualifies as trading income.

If you're running any kind of complex DeFi strategy - multiple protocols, frequent rebalancing, automated yield strategies - get a crypto-specialist accountant involved. The volume of transactions alone can make manual reporting extremely difficult, and miscategorisation is easy.

When does crypto activity become a trade?

This is the question with the biggest tax consequences, and the answer isn't black and white.

HMRC accepts that in exceptional circumstances, an individual's crypto activity could amount to a financial trade - essentially running what looks like a business. If that applies, income tax takes priority over CGT for any profits, and you'd also owe NICs.

HMRC's expectation, as stated in its manual at CRYPTO20050, is that it would be "unusual" for individuals to be running a business carrying on a financial trade in cryptoassets.

The badges of trade relevant to crypto include:

• Scale and frequency of activity

• Degree of organisation and sophistication

• Whether you're financing the activity commercially

• Whether the activity has the hallmarks of a genuine business

• Whether you're deriving a livelihood from it

Someone running a large-scale mining operation - multiple sites, significant capital investment, employees - is more likely to be treated as a trade than someone mining on a home PC. A professional day trader executing hundreds of transactions daily with a systematic approach sits differently than a retail investor who sells occasionally.

If you think your activity might meet the trading threshold, take advice. The difference between paying income tax plus NICs on trading profits versus income tax on miscellaneous income isn't trivial.

What you can deduct if you're running a trade

If your mining, staking or DeFi activity does constitute a trade, you move into sole trader territory. The good news is that business expense deductions become significantly more generous.

Allowable expenses may include:

• Electricity and energy costs directly attributable to the activity

• Hardware and equipment (via capital allowances)

• Internet costs

• Software, including tax software

• Premises costs if you operate from dedicated space

• Professional fees (accountancy, legal)

• Staff costs if applicable

These deductions reduce your taxable profit rather than just your gross income, which can make a meaningful difference where costs are high. Mining, in particular, can be expensive to run - high electricity costs against token reward income means deductions matter.

For miscellaneous income (i.e. activity that doesn't meet the trade threshold), the deductions are more limited: only expenses "appropriate" to the income-generating activity are allowable. Electricity directly used in mining is generally accepted; general overheads are less clear.

How to report it: Self Assessment

If your crypto income - from any source - exceeds £1,000 in a tax year, or your capital gains exceed the annual exempt amount, you need to file a Self Assessment tax return.

If total miscellaneous income from all sources exceeds £2,500, you must register for Self Assessment.

For 2025/26, the key deadlines are:

• Register for Self Assessment (if you haven't previously): 5 October 2026

• File online and pay: 31 January 2027

The 2024-25 Self Assessment tax return introduced a dedicated cryptoasset subsection within SA108 requiring separate reporting of crypto gains and losses, based on HMRC guidance published April 2025. HMRC is getting more granular in what it asks for - which means you need your transaction history to be in order.

The record-keeping reality

The administrative burden of crypto income is real. For every mining reward, staking payout or DeFi yield distribution, you need:

• The date it was received

• The amount in tokens

• The sterling value on that date

• The source (mining, staking, protocol name)

Then, if you later sell any of those tokens, you need the cost basis - which is the value you were taxed on at receipt - to calculate any further capital gain.

Across hundreds or thousands of transactions from multiple protocols and wallets, doing this manually is genuinely impractical. That's where Koinly can help - connect your wallets and exchanges, and Koinly pulls in your transaction history, calculates the sterling values at date of receipt, categorises income vs. capital events, and produces an HMRC-compatible tax report you can use directly for your Self Assessment.

Start for free and see what your crypto tax position actually looks like.