Reporting your cryptocurrency – what you need to know
Reporting your cryptocurrency – what you need to know
How is cryptocurrency taxed? How do I work out my gain? What should I be doing now?
March 27, 2023

Over the last decade, cryptocurrency, such as Bitcoin and Etherium, has grown from a rather niche investment corner to a mass market investment opportunity that everyone from central governments down to first time traders has started to explore.

If you have invested in cryptocurrency, you need to be aware of your tax reporting requirements and what records we, as your accountant, will need to calculate any taxes due on your trading activity.

How is cryptocurrency taxed?

Broadly speaking, for most people, cryptocurrency is taxed under Capital Gains Tax. Like any other asset, when you dispose of your cryptocurrency, tax is calculated on any gain you have made.

So, in a simple example, if you bought some Bitcoin for £1,000 and sold it for £5,000, you will have made a gain of £4,000 that tax may be due on.

There are certain circumstances where gains must be taxed as income, but generally speaking this requires a level of volume and sophistication that most individual investors will not achieve.

How do I work out my gain?

This is where it becomes a bit more complicated. In many situations, investors will buy currency over time, at varying different prices, and possibly may dispose of just some of their coins rather than selling all of their holding.

Depending on the volume of trading and the number of transactions, this can make calculating gains of crypto an extremely difficult task. The rules for calculating a gain are closely linked to how gains on share disposals are calculated, by taking the pool value of the coins when a disposal is made as the base cost. If interest and bonus drops of crypto have also been received over time, this adds another layer of complexity to the calculations.

What should I be doing now?

As we come up to the end of another personal tax year, we’d strongly recommend that you begin to pull together your crypto activity in the last tax year and submit this to your accountant well in advance of the deadline so we can assist.

Most online wallets will allow you to download what is known as a ‘transaction history report’, which will provide a detailed list of all purchases, disposals and deposits into your crypto wallet over the year. It will also detail the different coins invested in, the source currency for the transaction (often USD) and the local currency equivalent (GBP). This will form the basis of any crypto calculations we carry out, and so obtaining this early is vital.

If you have purchased, converted or sold cryptocurrency in the current tax year, we’re here to help guide you through the complicated world of crypto taxes. Reach out today for a personalised discussion regarding your circumstances.

Crypto flow chart V2
The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Team Hive
If you have any questions or comments about this article, please get in touch.
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