Crypto Tax: main tax implications

The tax implications of Crypto assets depends on their nature and use. A Bitcoin is a “fungible” form of an exchange token. If a Bitcoin is exchanged or traded for another, one still has the same type of asset. A “Non Fungible Token” (NFT) on the other hand is unique and cannot be replaced with something else. NFTs can be anything digital e.g. drawings, music, AI or digital art. A Dogecoin is not an NFT but its GIF image is. Utility tokens can be a form of NFTs.

As per HMRC’s Cryptoassets manual, regarding disposals of crypto assets by individuals, Capital Gains Tax (CGT) is the main tax to consider as most individuals will hold cryptos for investment appreciation or for trading purposes. Individuals will also have to pay income tax and national insurance contributions when they receive cryptos from their employer as a non-cash payment or for mining (verifying additions to the blockchain ledger), transaction confirmation or airdrops (receiving an allocation of tokens as part of marketing etc). Employment related securities rules may apply to securities tokens additionally.

Where an individual is running a financial trading business in crypto assets, trading profits therefrom may be taxed in accordance with income tax rules rather than CGT rules. Whether the individual is running a crypto trading operation similar to trading in shares, bonds and other financial securities, rather than crypto investment, will very much depend upon the facts of each case.

Companies will pay corporation tax on capital gains from disposals of crypto assets but there are a whole raft of complex rules that apply to CT that may equally apply to crypto transactions.

VAT considerations must be taken into account particularly NFTs which may amount to a provision of future services (e.g. like a loaded phone card). VAT rules in connection with the provision or place / time of supply of vouchers and tokens can be complex and may equally apply to crypto transactions.