Buying and selling cryptocurrencies can be a minefield for taxpayers who fail to keep accurate records, according to a leading online trading platform.
In Britain, HM Revenue & Customs (HMRC), online platform eToro and the accounting trade body ICAEW recently got together to offer tax advice to crypto traders in a webinar.
The online discussion covered how HMRC expects crypto traders to apply capital gains tax rules to their profits and losses in the same way as investors who buy and sell shares.
The starting point is keeping an accurate record of crypto transactions, which is easily available as the records are indelibly kept on a blockchain.
This is a two-way street, not only can taxpayers keep track of their trades, but so can the tax authority on a public blockchain. That means HMRC can compare trading records against tax returns to ensure that they are accurate.
Platforms hand over crypto data
The records should not only include coins and tokens but Certificates For A Difference, too.
eToro also revealed that in common with other financial and investment platforms, the company supplies HMRC with lists of investors and details of their accounts.
“eToro has tax compliance and regulatory responsibility to HMRC on an annual basis, as with all brokers and exchanges,” says the platform.
The platform also explained that as an execution-only service, although records of trades are kept, no tax advice is given.
“eToro retains a record of these transactions, however, eToro is execution only. That means we execute trades only and do not calculate tax nor provide tax advice. It is up to the individual to calculate gains or losses on crypto,” says the platform.
HMRC online guidance
“Your tax obligation is only on disposal. It is up to the individual to calculate any gains or losses made through crypto trades”
Traders seemed confused about their tax reporting obligations if they bought or sold holdings in US dollars.
The platform confirmed traders are liable for tax whatever currency they deal in.
HMRC publishes official monthly foreign exchange rates for taxpayers to convert their deals into British Pounds for entry on to tax returns.
The tax authority also has online guidance for individual cryptoasset traders in the UK who might have to file self-assessment tax returns.