Many of you would by now have at least heard of the ‘Bitcoin’ even if like many of us you do not actually know what one is.
A ‘Bitcoin’ is just a single version of what is known as a cryptocurrency, a form of currency which isn’t issued by a central bank and has no physical form. Instead it is a digital representation of a monetary value and can therefore be used to buy goods.
Cryptocurrencies have been in the press a lot in recent months. More and more are dipping their toe in investing and there have been some quite significant increases (and decreases) in values.
There is danger that those buying and selling these virtual currencies do not understand that they might have a tax obligation and indeed tax liability as a result.
Where a company or individual acquires a bitcoin they are potentially subject to capital gains tax (corporation tax for companies) on the increase in value of that bitcoin. To the date it is sold, capital gains tax is likely to be at a rate of 20% (10% where gains fall into the basic rate of tax) and corporation tax is payable at 19%.
As it is possible to trade Bitcoin within a virtual wallet, it might be that gains are arising and tax becoming due without any traditional cash receipts.
However this isn’t necessarily the end of the story.
Individuals have a capital gains tax free allowance (£11,300 for 2017/18) which may be used to cover investment gains from Bitcoins, however, if the overall proceeds in the year exceed £45,200 then it is still necessary to report the transactions on a tax return.
If there is sufficient frequency of Bitcoin trading it might actually constitute a trading activity. Particularly where the motivation is to make short term profits on the value of the currency. In this case, the tax liability on the profits arising could be significantly higher as they will be chargeable to income tax at 20%, 40% or even 45%. Again, where the trades are by a company the rate of tax will be 19%.
If you are investing (or even trading) in cryptocurrencies we at Rickard Luckin would be pleased to assist with your reporting and filing requirements. We are well-placed to advise on what needs to be reported and calculate the tax that is due. If you regularly trade in the currencies in your personal name you may want to consider holding these in a limited company due to the much lower rate of tax available for companies as trading profits.
If you would like any further information please contact Jamie Nice.