If you are a British cryptocurrency trader, the deadline day for tax filing is fast approaching, but do you know if you have any profits to declare – and if so how to declare them?
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The answer is probably no as cryptocurrency is a fiendishly complicated market with fluid rules and boundaries.
A cryptocurrency is simply a few lines of encrypted computer code living on the internet.
However, some investors have gained or lost fortunes worth million and HM Revenue & Customs wants to know thedetails to see if any tax is due.
How do cryptocurrency traders fill in their tax returns?
Cryptocurrency assets fall into three categories:
- Exchange tokens – the pure cryptos, such as Bitcoin, Ethereum and Litecoin
- Utility tokens – tokens offered in exchange for money that can be cashed in for discounts, goods or services later
- Security tokens – like shares, these tokens give the holders rights over a business
A defenceagainst declaring cryptocurrency profits is the market is really gambling,not investing or trading. The argument is sharp rises and falls of around 60% in market values in a day show cryptocurrency is a gamble rather than an investment.
Unfortunately, HMRC doesn’t agree and the issue is yet to be tested in the courts.
Neither do the tax man and other financial regulators consider cryptocurrencies as money or currency, despite the name.
That puts any profits from investing outside the rules that exempt dabbling in foreign exchange from tax.
Completing a tax filing
Some investors try to persuade HMRC that their cryptocurrency activity is trading – which would mean they run a business governed by income tax rules. This would allow them to reduce the taxable profits by offsetting business costs.
The definitive case is Salt v Chamberlain. Michael Salt claimed he had made 200 share transactions on the Stock exchange over several years to support his claim, but still lost his case.
So, investors know what cryptocurrency isn’t, which leaves any gains or losses subject to capital gains tax.
Cryptocurrency investors should complete the CGT pages of their self-assessment tax return for the year ending April 5, 2018,and file them together by midnight on January 31 – and pay any tax due by the deadline.
They may have to complete the core return other income boxes as well if receiving any money from cryptocurrency-related activities. These would include generating income from mining or airdrops.
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