Reporting Cryptocurrency On Your Taxes: A How-To Guide

As more and more people venture into the world of cryptocurrency than ever before, many people are faced with the task of having to correctly list new additional earnings on their tax returns in order to stay within the rules and avoid getting in trouble with HMRC.

Following on from our first guest article on the tax implications of cryptocurrencies, we’re going to dive into everything you need to know about including the earnings (or losses) from cryptocurrency on your yearly tax returns.

With HMRC stepping up their investigations into people they believe are incorrectly reporting cryptocurrency earnings on their tax returns, now is not the time to sit back and cross your fingers. With the risk of being caught out becoming more realistic, don’t take your chances with this one. Here’s where to start when it comes to reporting cryptocurrency on your taxes:

Determine the Nature of Your Transactions

As we discussed in our article covering the tax implications of crypto, it’s possible that you could have to pay either Capital Gains Tax OR Income Tax depending on the nature of the transaction. Here’s a quick refresh:

• Capital Gains Tax (CGT): If you've sold, exchanged, or disposed of cryptocurrency, you will likely need to report these transactions for CGT purposes.
• Income Tax: If you've received cryptocurrency as income (e.g., from mining, staking, airdrops, or payment for services), you will need to report it as income and pay Income Tax.

Remember To Keep Detailed Records

HMRC’s rules require you keep accurate records of all your crypto transactions, so it’s important to be on top of this to avoid risking trouble further down the line. To ensure that you’re covered in any future investigation, try to keep records of:

• The date of each transaction
• The type of transaction (e.g. buy, sell, trade, income)
• The number of units of cryptocurrency involved
• The value of the cryptocurrency in GBP at the time of the transaction
• Any transaction fees paid
• Counterparties involved (if known)

Calculate Your Gains And Income

Before filling out your tax return, you need to know the gains or income that you have got from your cryptocurrency over the previous year. 

For investments in cryptocurrency, this means calculating the profit or loss from each disposal by subtracting the cost of acquiring the asset (including fees) from the proceeds gained when sold.

For any cryptocurrency that was received as income, this is purely just the value of any income at the time that it was received.

Complete Your Self-Assessment Tax Return

To correctly report your crypto transactions, you will need to file a Self-Assessment tax return- even if you're normally a PAYE taxpayer. Here’s a step by step guide on what you’ll need to do:

Step 1: Register for Self-Assessment

If you haven't filed a Self-Assessment tax return before, you need to register with HMRC. You must do this by 5th October following the tax year in which you earned taxable crypto income or gains.

Step 2: Fill Out The Self-Assessment Form

On the Self-Assessment form itself, there will be different sections that require your attention depending on the kind of tax that is owed. Make sure you understand which one is relevant to you based on your circumstances before filling out the form. If you need advice, speak to a qualified accountant to be sure.

Capital Gains:

• In your Self-Assessment form (SA100), navigate to the "Capital Gains Summary" section.
• Enter your total gains and allowable losses from crypto transactions in this section.
• You may need to include the "Capital Gains Tax Summary" (SA108) form, which provides more details about the gains and losses.
• Capital gains and losses from crypto activities should be combined with gains and losses from other sources, such as property and shares.

Income:

• If you received cryptocurrency as income (from mining, staking, or as payment), report this in the appropriate income sections of the tax return.
• For earnings from employment or self-employment, you should report crypto income under "Employment" or "Self-Employment" income as part of your total earnings.

Step 3: Claim Losses (if relevant)

If you incurred any losses from your crypto investments, report them in your Self-Assessment to offset your gains. Losses can be carried forward to future tax years if you don’t have enough gains to offset in the current year.

You must report any losses to HMRC within four years of the end of the tax year in which the loss occurred for this to be valid.

Be aware of the relevant deadlines

The deadline for submitting your online Self-Assessment tax return is 31st January following the end of the tax year (e.g., for the 2024/25 tax year, the deadline is 31st January 2026). For paper tax returns the deadline is 31st October.

Any tax owed must be paid by 31st January. You can make payments via bank transfer, Direct Debit, debit/credit card, or other methods available on HMRC's payment portal.

Cryptocurrency Tax Compliance: Take It Seriously

If you’re a cryptocurrency investor, the seriousness of making sure that you stay compliant cannot be underestimated. 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 Crypto 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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