A Chartered Accountant’s Top Tips For Cryptocurrency Traders
Cryptocurrency trading is becoming more and more popular, with many people dipping their toes into the lucrative world of crypto. Whether you’re looking to jump into trading to make some serious profits, or just keen to dabble a little on the side, here are some of our top tips for how to make sure that the accounting side of your ventures stays compliant and doesn’t land you into trouble with the taxman.
In our series of guest contributions so far, we’ve taken a look at the tax implications of cryptocurrencies, and covered everything you need to know about including the earnings (or losses) from cryptocurrency on your yearly tax returns. In this article, we’re going to build on this, and share our top tips that you really should know!
Make Sure You Understand UK Crypto Tax Rules
In the UK, cryptocurrencies are generally treated as assets, so if you’re actively trading cryptocurrency and making profit, your earnings are going to be subject to capital gains tax (CGT).
After much anticipation, the rules around Capital Gains Tax were changed in the Autumn Budget on October 30th. It is now the case that any amount over the tax-free allowance of £3000 is subject to CGT which is 18% for basic rate taxpayers and 24% for higher-rate taxpayers. Put simply, this means that you’ll now either be taxed at 18% or 24% on any amount over £3000.
Certain costs related to your crypto trading, such as transaction fees, exchange fees, or professional advice, may be tax deductible. Be sure to maintain receipts and documentation to support your claims when you submit your tax returns.
You’re also able to offset crypto losses against your gains in the same tax year or carry them forward by up to four years which can help to reduce your taxable capital gains.
Record Every Crypto Transaction You Make
In order to stay compliant, HMRC requires you to keep detailed records of all your crypto transactions, including dates, amounts, values in GBP at the time of the transaction, and associated fees. It’s important to make sure that you also track crypto-to-crypto trades as well, as each trade is treated as a disposal.
You need to keep your crypto records for at least five years after the 31 January submission deadline of the relevant tax year. Ensure they are easily accessible for review if needed. While transfers between your crypto wallets are not taxable, it’s crucial to keep a record to avoid confusion during tax calculations.
Use Compliant Accounting Software
In order to automate your accounting records, use tools like CoinTracker, Koinly, or Accointing, which are compliant with UK tax rules. These tools can connect to your exchanges and wallets to automatically record transactions and calculate gains/losses.
It’s best to make sure that your accounting software supports different accounting methods like FIFO (First In, First Out), which HMRC typically uses for calculating gains. Ensure this method is applied consistently across all your cryptocurrency activities.
File Your Self-Assessment Tax Return Accurately
When filing your Self-Assessment each year, it’s crucial to ensure you report all crypto gains, losses, and income accurately under the correct sections. HMRC is increasingly scrutinising cryptocurrency transactions, so accurately submitting your Self-Assessment is the only way to ensure that you don’t land in any trouble.
Given the complexities of cryptocurrency tax rules in the UK, it’s definitely worth considering consulting a tax accountant who is familiar with crypto taxation. They can help ensure you're compliant and minimise your tax liabilities, taking away the stress of making any costly mistakes
We hope that these tips will help you stay well organised and compliant with HMRC rules, when it comes to your crypto trading.
Crypto Tax Compliance: Take It Seriously
If you’re a cryptocurrency investor, making sure that you stay on top of compliance is essential. With HMRC stepping up their efforts to crack down on non-compliance, getting caught out brings with it the risk of a hefty fine.
With everything that is going on in the world right now, the last thing you want is to be worrying about the potential implications of having to deal with an investigation. That's why the best way to settle your nerves, and make sure that you’re staying on the right side of HMRC is to work with a trusted cryptocurrency tax professional that is able to help you navigate the rules with ease and continue trading like a boss.
This article was written by Nordens Chartered Accountants where they offer expert advice and assistance with all of your business needs: from your everyday accounting to Advisory, Tax, Audit and more!
For support with any Cryptocurrency Tax or accounting services, look no further than Nordens Chartered Accountants. You can contact them by filling out their contact form here to schedule a consultation.
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