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Essential UK cryptocurrency tax guide for 2022

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The Ultimate UK Crypto Tax Guide 2022

Last updated: Friday, 12 November 2021

In its Cryptoassets Manual the HMRC has set out clear guidelines on how crypto is taxed: Cryptocurrency attract both Capital Gains Taxes and Income Taxes in the UK. But what does that mean for you? Koinly leaves no stone unturned as we explore the tax implications of all things crypto - from buying and selling to swapping, mining, staking, airdrops, lending, DeFi and more. Find everything you need on UK crypto taxes in our comprehensive guide. It's the only resource you'll ever need!

This guide is regularly updated

Before we start - global crypto tax rules are in constant flux. At Koinly we keep a very close eye on Her Majesty's Revenue and Customs Cryptoassets Manual- and regularly update our guide to keep you informed and tax-compliant.

Update 12 November 2021: HMRC 2022 tax rates updated

Update 20 October 2021: HMRC sends nudge letters to crypto traders

Update 01 March 2020: HMRC 2021 tax rates updated

First Published 01 July 2019: Welcome to your UK cryptocurrency tax guide!

Yes, Cryptocurrency is taxed in the United Kingdom

The UK does not treat cryptocurrency as currency or money. Instead, HMRC views crypto as property. This means crypto is taxed as either Capital Gains Tax or Income Tax in the United Kingdom. With the government specifically targeting crypto, it’s essential that you understand the tax consequences of owning crypto.

UK tax deadline

If you’ve bought or sold cryptocurrency between the UK tax year of 6 April 2020 and 5 April 2021, you'll need to declare your crypto totals on your 2020-2021 Self Assessment tax return.

Will HMRC know about your crypto?

Yes. If you have an account with a UK cryptocurrency designated service providers (DSPs), then it's likely that HMRC already has your data. You might recall that in 2020, Coinbase handed over data on UK customers who transacted more than £5000 worth of cryptocurrency between 2017 and 2019.

  • The HMRC has a data sharing program with all UK exchanges.
  • The HMRC has crypto transaction data from as far back as 2014.
  • The HMRC has the Know your customer (KYC) information you provided when signing up for any UK exchange or wallet.

Nudge letters

In October 2021, the HMRC announced that it plans to probe digital currency holders over undeclared gains. The letters are sent to encourage crypto investors to pay the correct amount of Income Tax and Capital Gains Tax on their crypto asset holdings.

Filing crypto with the HMRC

Once you, or your accountant have calculated your crypto tax totals (we have an app for that), the easiest way to file your taxes in the UK is online. Sign in with Government Gateway or GOV.UK Verify to complete your Self Assessment online.

Crypto Income Tax

Crypto is views either as capital gains or income in the UK. Let's look at Income Tax first.

There are cases where crypto is treated as income and thus attracts Income Tax. Cryptocurrency transactions that are classified as income are taxed at your regular Income Tax band. In some instances, you'll also need to make National Insurance contributions on income from crypto too.

Inforgraphic: when will you pay income tax on crypto in the UK

In the UK, crypto is taxed as Income when it comes from:

How much will you pay?

If you're wondering how much tax do you have to pay on crypto income in the UK, the answer depends on your income tax band. In the United Kingdom, your crypto income tax rate will be the same as the highest tax band you fall into, and will be considered miscellaneous income. You’ll pay anywhere between 0% to 45% in tax.

It’s important to note you don’t pay the same flat rate of Income Tax on all your earnings. For all English and Welsh taxpayers (bar those earning over £125,140) you’ll have £12,570 tax free. Then you’ll pay 20% tax on your next £37,699 of income and 40% on the next £99,729 of income and 45% in tax on any income over this amount.

Scottish taxpayers have slightly different Income Tax Bands. See here.

UK Income Tax Bands 2021 - 2022

Tax rateTaxable incomeBand
0%Up to £12,570Personal allowance
20%£12,571 - £50,270Basic rate
40%£50,271 - £150,000Higher rate
45%£150,000+Additional rate

Source: HMRC

Infographic: Koinly looks at UK crypto tax breaks

Capital Gains Tax

A Capital Gains Tax (CGT) event occurs when you dispose of your cryptocurrency. Dispose means to sell, gift, trade, exchange, convert or use crypto to buy things.

Infographic: When will you pay capital gains tax on crypto in the UK

There are 4 ways you could pay capital gains tax on crypto in the UK:

  1. Sell crypto for fiat currency like GBP
  2. Swap crypto for crypto
  3. Spend crypto to buy things
  4. Gift crypto, Unless it’s a gift to your spouse or civil partner

How much will you pay?

In the United Kingdom, the amount of Capital Gains Tax owed on crypto depends on how long you’ve held your assets, and on your Income Tax rate.  

  • Tax breaks: You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance of £12,300 (called the Annual Exempt Amount).
  • Short-term capital gains: Your CGT tax rate will depend on your Income Tax band. The basic Capital Gains Tax rate for those earning less than £50,270 is 10%, while the higher rate for those earning more than £50,271 is 20%.
  • Long-term capital gains: Your long-term capital gains are taxed at the same rate as short-term gains, that is, according to your Income Tax band.
  • Losses: You can report losses on crypto assets to HMRC to reduce your total taxable gains. The time limit for claiming capital losses is within four years of the end of the tax year in which the capital loss was realised. The loss needs to be reported to the HMRC first. Losses can be reported either by letter or on the Tax Return itself.

UK Capitals Gains Tax rate

Tax rateTaxable income
10%Basic Rate Income Band (up to £50,270)
20%Higher Rate Income Band (up to £150,000)
20%Additional Rate Income Band (more than £150,000)

How to calculate your Capital Gains Tax

A capital gain in crypto is the same in any class of asset - like a share. The gain is the difference in value from when you got your crypto, to when you sold it. You'll make a capital gain if the proceeds from the disposal is more than what it cost you, in total - known as the cost basis.

Infographic: Koinly explains crypto cost basis

To know how much you gained, or lost, you need to know your cost basis. This is the purchase price of your crypto plus the costs related to acquiring or disposing of it, like transfer fees.

Infographic: Koinly explains UK crypto tax

A capital gain is the difference between the selling price and the purchase cost of an asset.

HMRC cost basis methods

The UK’s HMRC has very specific rules for crypto cost basis methods, known as share pooling. This is to stop crypto investors from manipulating the ACB cost basis method by purchasing and selling assets at a loss in a short period of time to create an unrealistic view of gains and losses.

Infographic: Koinly explains HMRC crypto tax share pooling

In the UK, there are three possible cost basis methods you can use and you need to work through them in order of which applies to your assets:

  1. Same-Day Rule: If you buy and sell coins on the same day, you need to use the cost basis on this day to calculate your gains/losses. If you’re selling more than you bought on that day, move onto the next rule.
  2. Bed and Breakfasting Rule: If you buy coins/tokens and sell the same coins/tokens within 30 days, you’ll use the cost basis of coins/tokens you bought within this month to calculate your gains/losses. If you’re selling more than you bought within this month, move onto the final rule.
  3. Section 104 Rule: If the above two rules don’t apply to any of your crypto transactions, you need to use this cost basis method when calculating your crypto taxes. This works like the ACB method in that you calculate an average cost basis for a pool of assets by adding up the total amount paid for all assets and dividing it by the total amount of coins/tokens held.

Check out our article on calculating tax with share pooling for examples on how this works.

EXAMPLE

Natalie bought 1 BTC for £1,000. 6 months later she bought 0.5 BTC for £2,000. So her total pool of bitcoin is 1.5 and total allowable costs are £3,000.

Let's say Natalie sells 0.5 BTC some years later for £3000. This is what her capital gains calculation would look like:

Amount
Consideration£3000
Less allowable costs£3,000 x (0.5 / 1.5)£1000
Gain£2,000

Post this sale, Natalie will have a remaining pool of 1 BTC with an allowable cost of £2000.

Be mindful of the Same-day and the Bed-and-breakfasting rules

The rules of Same-Day and 30-Day that apply to shares also apply to cryptocurrency. This is done to prevent wash sales i.e. selling crypto and buying it back in an attempt to realize losses and reduce your tax burden.

Let's understand the same day rule first. If you sell a cryptocurrency and buy another crypto of the same type on the same day, the cost basis for your sale will be the acquisition cost of the crypto you bought on the same day. This will be the case even if the acquisition of the crypto takes place before the sale - as long as they are both on the same day.

The 30-day rule is also quite similar. Any of the crypto you acquire within 30 days of a sale will be used as its cost basis.

These rules are in place to make sure that you don't sell your holdings at the end of the tax year to create losses that you can write off, and then buy them back immediately after.

EXAMPLE

Simon owns 2.5 ETH. He has spent £2000 acquiring this crypto, which is his pooled allowable cost. Let's say Simon sells 1 ETH on 29th August 2018 for £3000, and buys 0.25 ETH on 12th September 2018 for £700. Since this 0.25 ETH has been bought within 30 days of the disposal, it doesn't go into the pool. Here's how Simon's capital gains will be calculated:

Step 1: Calculating gains on the 0.25 ETH

Amount
Consideration£3000 x (0.25 / 1)£750
Less allowable costs£700
Gain£50

Step 2: Calculating gains on the other 0.75 ETH

Amount
Consideration£3000 x (0.75 / 1)£2250
Less allowable costs£2000 x (0.75 / 2.5)£600
Gain£1650

After this transaction, Simon still has a pool of 1.75ETH which has allowable costs of £1400 remaining.

When is crypto tax-free?

In the UK you won't pay take on the following instances:

  • Buying crypto with fiat currency.
  • HODLing crypto.
  • Transferring crypto between your own wallets.
  • Gifting crypto to a spouse.

How is buying crypto taxed?

There are no taxes on buying crypto in the UK, or even hodling it for as long as you want. You should still keep records of these transactions so that you can deduct the costs when you eventually do sell them.

How is selling crypto taxed?

Any sale of cryptocurrency is subject to Capital Gains Tax. Every different cryptocurrency is seen as separate CGT (Capital Gains Tax) asset.

EXAMPLE

John sells 1BTC in November 2017 for £12000. His cost for 1 BTC was £9000. In this case, his total capital gain would be £3000. This would be taxed at the appropriate rate depending on his tax bracket.

How is trading one crypto for another taxed?

The HMRC makes it quite clear that exchanging one crypto for another also constitutes a taxable event. This means that you're basically disposing of a CGT asset and acquiring another one. The market value of the crypto that you receive is considered as the sales price for that transaction. If this crypto cannot be valued for some reason (eg. ICO tokens), then you can use the market value of the crypto you sold.

EXAMPLE

Let's say your costs for 0.1 Bitcoins was £500. In November 2017, you exchanged 0.1 Bitcoin for 2 Ether. At this time, the market value of 2 ether was around £800. This basically means that £800 is your sales proceeds and £500 is your cost basis, so the total capital gains would be £300.

How are stablecoins taxed?

A stablecoin is simply a class of cryptocurrencies that offers price stability by being backed by a reserve asset, usually a stable fiat currency like USD. As far as the HMRC is concerned, stablecoins like TrueUSD are exactly the same as any other cryptocurrency, and so the tax treatment is the same as for regular crypto to crypto trades.

How is spending crypto taxed?

Using your cryptocurrency to buy goods and services? From a tax perspective this is the same as selling crypto and is subject to CGT. It's important to remember that the market value of the crypto that you use to pay for something will be counted as the sales proceeds.

Is moving crypto between wallets taxed?

While there's no tax on moving crypto between different wallets you own, it's important to note that you need to keep a track of these movements. If you don't take these movements into account the HMRC might assume they are disposals and tax them.

EXAMPLE

Let's say Mitch buys 4 LTC for £400 on Coinbase. He then moves the funds into his LTC wallet and from there he moves the funds to his Binance wallet and sells them for £500.

If Mitch uses a crypto tax software like Koinly to generate his crypto tax report, he will have to connect all 3 wallets. If he only syncs his Coinbase and Binance wallet but not his LTC wallet, then the software won't be able to identify that the funds transferred to the Binance wallet are the same ones purchased on Coinbase. If all 3 wallets are synced, then the software will be able to generate an accurate tax report.

If for some reason, a particular wallet is no longer available, Mitch can make these changes manually using the Koinly web interface. He will mark the transfer from Coinbase as "ignored" so that Koinly doesn't realize gains on it. Then he would have to change the value of the incoming transaction on Binance to match the cost-basis of the outgoing transaction from Coinbase.

How is mining taxed?

Mining of cryptocurrency can either be considered as a hobby or as a full-fledged business. This will depend on several factors such as:

  • degree of activity
  • organisation
  • risk
  • commerciality

Mining as a hobby

If your mining activity is classified as a hobby, then any income from mining has to be declared separately under the heading of "Miscellaneous Income" on your tax return.

The income in this case will be the fair market value of the crypto at the time you receive it.

Appropriate expenses can be deducted from this income before adding it to the taxable income.

Also keep in mind that when you dispose of this crypto, that will be subject to capital gains tax.

Mining as a business

If mining is classified as a business based on the criteria mentioned above, then the mining income will be added to trading profits and be subject to income tax. Similarly, fees or rewards received in exchange of any mining/staking activity will also be added to taxable income. Appropriate expenses would be deductible, of course.

While disposing of such cryptocurrency, any gain in value from the time of acquisition will be added to the trading profits. You will also have to pay National Insurance Contribution for this transaction.

How is staking taxed?

HMRC states that the GBP value, at the time of receipt, of any tokens awarded will be taxable as income (miscellaneous income) with any appropriate expenses reducing the amount chargeable.

Note that some may want to treat this as savings income instead, the main benefit of this would be that you can claim your personal savings allowance to reduce the taxes further. However, we recommend checking with a tax accountant before doing this.

Remember, when you dispose of your reward later, Capital Gains Tax rules will apply.

How are hard forks taxed?

A hard fork refers to a situation when a particular cryptocurrency splits into two, and crypto holders receive crypto from the new fork due to their holdings in the original crypto. In this case, the value of the new crypto is derived from the original crypto that's already held by the individual.

Crypto received from a hard fork, is therefore, not subject to income tax.

However, after the fork, the crypto assets have to go into their own pool. The deductible costs related to the original crypto assets will be split between the two different pools — one for the original asset and one for the newly forked crypto. The HMRC doesn't have any particular guideline for this apportionment. This splitting of costs should be just and reasonable under section 52(4) Taxation of Capital Gains Act 1992. Standard practice is that the cost of the original crypto is apportioned between the old and new crypto assets in line with the market values of both assets on the day after the hard fork.

How are Airdrops taxed?

An airdrop is a situation when a particular individual is selected to receive crypto, perhaps as part of a marketing or publicity campaign. Income tax will not apply to airdropped crypto provided:

  • They're received without doing anything in exchange
  • They aren't received as part of a trade or business involving crypto

If airdrops are provided in return for a service, they will be part of either miscellaneous income or trading profits (if you are a business). In either case, they will be subject to income tax.

If this airdrop is received by an individual, it will be subject to capital gains tax at the time of disposal. If it has been received by a crypto business or trader, any increase in valuation will be added to trading profits and be subjected to income tax and you will have to pay National Insurance Contribution on this as well.

How is margin trading taxed?

There is little clarity from the HMRC when it comes to individuals who trade and invest in Futures, CFDs (Contract for Difference) and margin trading as far as cryptocurrency is concerned.

If an individual is treated as a financial trader, then the gains are added to trading profits and income tax is payable. However, when the individual is not a financial trader, it's not very clear whether gains or losses are to be taxed under capital gains tax or added to miscellaneous income and subjected to income tax.

How are ICOs or IEOs taxed?

ICOs (Initial Coin Offerings) or IEOs (Initial Exchange Offerings) refer to a situation where investors can purchase tokens/coins in a yet-to-be-released cryptocurrency/company. In this case, investors pay for the new token through existing cryptocurrency like Bitcoin or Ethereum.

In other words, this works like a crypto-to-crypto exchange. You will have to pay capital gains tax on the crypto that you exchange for the ICO token. The "sales proceeds" here will be the market value of the existing crypto (not the new token) on the date that the exchange took place. Plus, this same market value will also serve as the cost basis for the new token that you receive from the ICO, which you can use to calculate pooled costs.

How is cryptocurrency gifts taxed?

If you give cryptocurrency as a gift to someone other than your spouse or civil partner, you will have to figure out the market value (in pound sterling) of the crypto on the date that it was given away as a gift. This will be considered as sales proceeds for Capital Gains Tax purposes.

Importantly, if income tax has already been charged on the value of the tokens that are gifted, section 37 Taxation of the Capital Gains Tax Act 1992 will apply. This basically means that the "sales proceeds" will be reduced by the amount that has already been subject to income tax, and then be subjected to CGT.

EXAMPLE

Janie is a UK resident who received crypto worth £500 as a gift from her mother. She sold it in May 2018 for £700. The pooled value of her crypto was £500 and her capital gain was £200. Janie's taxable income is £160000 and she falls in the category of additional rate tax payer. As a result her total CGT on the disposal of the crypto would be 20% of £200 or £40.

Tax on Crypto Donations

If an individual donates crypto to charity, they are entitled to Income tax relief on the donated amount. They can also get an exemption from Capital Gains Tax although there are two exceptions:

  • In case the individual sells the crypto assets to the charity at a cost which is more than the acquisition cost, they will have to pay CGT on the difference between the selling price (instead of market price) and the acquisition cost.
  • In case they make a tainted donation — this refers to a situation where an individual makes arrangements with a charity to get some form of kickback/financial advantage.

How does HMRC tax DeFi?

At the time of writing, HMRC has issued no specific guidance on the taxation of DeFi. But before you breathe a sigh of relief - this doesn’t mean you don’t pay tax on your DeFi investments in the UK.

While there is no specific guidance for DeFi, HMRC has plenty of detailed guidance on the taxation of crypto in the UK in general. Much of the current guidance covers DeFi investments, and sets a precedent for how a DeFi investment is likely to be viewed from a tax perspective. 

All this comes down to whether your crypto will be viewed as income or a capital asset.

How is liquidity mining taxed?

You won’t pay tax when you add liquidity or remove liquidity as you’re not making a disposal or earning new income - you’re just moving your original capital around.

However, you will pay tax on the rewards earned and HMRC is yet to give any clear guidance as to whether this would be considered income or a capital gain. Their stance on airdrops being viewed as income, as well as staking being viewed as income, suggests that rewards earned through liquidity mining could also be seen as income.

How is wrapping taxed?

HMRC does not have clear guidance on this just yet. However, as you’re swapping one coin for another, it is very possible that they would view this as a kind of disposal and subject to Capital Gains Tax. So even if you make no gain or loss (because you’re swapping something for equivalent value), you may still need to declare this on your tax return.

On the other hand, it can be argued that the intention of wrapping a coin is to add additional functionality to the original asset so that it can work with DeFi protocols. From this perspective, wrapping is not a disposition nor a taxable event. Consult your tax advisor.

How is yield farming taxed?

The purpose of yield farming is to strategically stack different crypto investments on top of each other to yield the largest rewards. The process of yield farming generally consists of several transactions, often across multiple DeFi layers.

Depending on the stack, you may end up earning interest-like income, or, your asset may grow in value.

You'll pay Income Tax on interest gained through yield farming, and Capital Gains Tax on an asset value increase gained through yield farming.

We take a laser-beam look at the tax implications of DeFi and Yield Farming in our UK DeFi Crypto taxes - the Ultimate Guide.

Tax on wages received in Bitcoin or altcoins

Any crypto received as employment income is considered money's worth. If you receive all or part of your salary/freelance income in cryptocurrency instead of fiat currency, you will have to pay income tax and National Insurance contributions based on the value of the crypto on the date of receipt.

The precise rules are different depending on whether the crypto assets you receive are Readily Convertible Assets (RCAs) or not. Any disposal of such crypto assets (that are received as employment income) is subject to Capital Gains Tax.

Cryptocurrency trading as a business

If you are carrying on a business that involves cryptocurrency transactions, then the rules are more complex.

You may be liable to pay a number of different taxes like CGT, Income Tax, Corporation Tax, Stamp Duties and even VAT depending on the type of transaction.

Note that the HMRC may decide to treat you as a business even if you are an individual if your level of activity is comparable to a business. So how does the HMRC decide whether you're holding crypto as an investment or whether you qualify as a crypto trader? Here's what the HMRC has to say about it:

Only in exceptional circumstances would HMRC expect individuals to buy and sell crypto assets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself. If it is considered to be trading then Income Tax will take priority over Capital Gains Tax and will apply to profits (or losses) as it would be considered as a business

In this case, a trade in crypto assets would be similar to trading in shares, securities, etc. This means that crypto traders can refer to the Business Income manual (BIM56800) for more information on the relevant approach.

EXAMPLE

Greg is a freelance web developer who received a payment from a client in the form of 0.1 BTC in July 2017. The value of the 0.1 BTC was £500 on the date that it was credited to his bank account. This means he needs to add £500 to his taxable income while calculating his tax liability for the year.

How to legally pay less crypto tax

There are ways to strategically - and legally - reduce your crypto taxes. To potentially pay less tax in January 2023, you'll need to make your move before the end of financial year - so by April 05 2022.

Fine-tune your crypto tax-saving strategy with our excellent guide - 8 Ways to Pay Less Tax on Crypto in the UK.

Leveraging deductible costs

There are certain allowable costs that can be deducted from the sales proceeds when calculating the gain or loss. Here they are:

  • The consideration (in pound sterling) that was originally paid to acquire the crypto asset
  • The transaction fees that's paid before the transaction is added to a blockchain
  • Any exchange fees related to trades
  • Professional costs for drawing up the contract for both acquisition and disposal of the asset
  • Costs related to advertising for a purchaser or vendor
  • Costs of making an apportionment or valuation in order to calculate the gains or losses

The following costs are not allowable for CGT purposes:

  • Any costs that have already been deducted against profits for Income tax
  • Costs of mining activities (such as electricity and equipment). That's because in case of individuals mining crypto as a hobby these costs are not wholly attributable to mining crypto. However, some of these costs can be deducted against profits for Income Tax or when the mining equipment is disposed of.

In case mining is being done as part of a business, the crypto assets will form part of trading stock. If they are transferred out of trading stock, the business will be treated as if they bought the crypto at the value that's being used in the trading accounts. This value can then be used as an allowable cost when they decide to dispose of the crypto assets.

Dealing With Loss and Fraud

Losing a private key

If a crypto owner misplaces their private key, the crypto assets are still owned by them and exist in the distributed ledger. That's why the HMRC does not treat this as a disposal from a CGT perspective.

However, in case there is no way of recovering the private key and accessing the crypto assets, the individual can make a negligible value claim so that they can crystallize the loss.

Being a victim of fraud

If your cryptocurrency is stolen/hacked, the HMRC does not consider this a disposal. That's because the individual still owns the assets and has a right to recover them. As a result, no loss can be claimed. However, in case someone pays for crypto assets but doesn't end up receiving any, they can claim a capital loss.

Similarly, an individual who pays for and receives crypto assets that turn out to be worthless, can file a negligible value claim to the HMRC and offset losses.

Which tax forms do you report crypto on?

Capital gains are reported on the Capital gains summary form (SA100 Tax Return).

Capital gains summary

WHO NEEDS TO FILE THIS?

Anyone who has capital gains or losses during the tax year. You don't need to file it if your profits are less than the annual CGT allowance (£12,000 in 2019).

WHAT INFORMATION IS NEEDED?

This form requires you to enter the number of disposals, profits and losses from your crypto trades. You also use it to declare any other capital gains ex. from the sale of a residential property.

What if I don't file my crypto taxes?

The HMRC is quite active in ensuring cryptocurrency traders pay their taxes. They regularly ask major exchanges like Coinbase for information on their UK based customers. This is usually followed up by notices to identified crypto traders who misreported their capital gains.

HMRC going after Coinbase clients

Traders receive email from Coinbase about HMRC's request

With the cryptocurrency and Defi markets growing at such incredible rates the HMRC is unlikely to stop its pursuit so it's best to be proactive and report/pay your crypto taxes in time to avoid late penalties and prosecution.

Who can help you calculate your crypto tax?

Crypto tax reporting is fairly new, and a road less travelled for most accountants. That doesn't mean HMRC is going to cut you any slack. Here are 3 ways you can tackle your crypto taxes and keep in the taxman's good books. We'll start with the easiest and most accurate method first.

  1. Use crypto tax software like Koinly to create a crypto tax report of crypto activity. Send the report to your accountant to complete your tax return for you. This is smart move especially if you have DeFi earnings to consider.
  2. Use a crypto tax calculator like Koinly to create a crypto tax report of crypto activity. Add the necessary data from your crypto tax report to your Self Assessment and file it yourself.
  3. Get your accountant to work out your crypto activity by supplying transaction histories, statements and potentially historic cryptocurrency-to-GBP conversions. Let them work it out and the file for you. Be warned - this will be a lengthy and expensive exercise.

How to use cryptocurrency tax software to automate your taxes and record-keeping

Cryptocurrency taxes don't have to be complicated. You can use a crypto tax calculator like Koinly to import your data from all your exchanges/wallets and generate accurate cryptocurrency tax reports in a matter of minutes. You can even use it to keep track of your tax liability in real time.

Let's look at how you can use Koinly for your taxes:

Step 1: Connect your exchanges and wallets

Most exchanges have API's that can allow Koinly to download your transaction history automatically. You can also import CSV or excel files with your transaction history if you prefer that (or if your exchange does not have an API).

Step 2: Preview your capital gains

Koinly does a number of things under the hood in order to calculate your capital gains and income.

First it fetches the market rates at the time of your trades (and converts to GBP), then it matches transfers between your wallets and exchange accounts and finally it calculates your capital gains using shared-pooling (if you are in the UK).

All this is automated so the only thing you have to do is head over to the Tax Reports page to see a summary of your gains:

Note that you can also use the Dashboard to stay on top of your taxes as you carry out trades. This can help you make good tax-friendly trades and avoid surprises at tax time!

Step 3: Download your tax reports

The final step - if you can call it that - is to download your tax reports. Our cryptocurrency tax software allows you to download a Capital gains summary form for the HMRC along with a Complete Tax Report with all your transaction logs and calculations (useful incase of an audit).

Your report will download as a PDF and will contain 

1. Capital gains summary

2. Income summary

3. Asset Summary

4. End of Year Balances

5. Capital Gains Transactions

6. Income Transactions

7. Gifts, donations & lost assets

8. Expenses

9. Data sources

With your summaries calculated, it's time to share your data with HMRC.

What kind of records might the HMRC ask for?

As far as crypto record keeping is concerned, HMRC correctly states that many exchanges do not keep detailed information about crypto transactions and the onus of maintaining these transactions accurately rests with the taxpayer. These details include:

  • the type of crypto asset
  • date of the transaction
  • whether the crypto assets were bought or sold
  • the number of units involved
  • value of the transaction in pound sterling
  • cumulative total of the investment units held
  • bank statements and wallet addresses, as these might be needed for an enquiry or review

You should ensure you download reports regularly from your exchanges as they can lose your data or just delete it permanently after a certain period of data. Again, using tax software like Koinly can help you maintain such a ledger.

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