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CGT on cryptoassets

Newsletter issue - February 2020.

Cryptoassets are a relatively new type of asset that have become more prevalent in recent years. New technology has led to cryptoassets being created in a wide range of forms and for various different uses.

Cryptoassets (or 'cryptocurrency' as they are also known) are cryptographically secured digital representations of value or contractual rights that can be:

  • transferred
  • stored
  • traded electronically

While all cryptoassets use some form of Distributed Ledger Technology (DLT) not all applications of DLT involve cryptoassets.

HMRC do not consider cryptoassets to be currency or money. They have identified three types of cryptoassets:

  • exchange tokens
  • utility tokens
  • security tokens

However the tax treatment of all types of tokens is dependent on the nature and use of the token and not the definition of the token.

In most cases, individuals hold cryptoassets as a personal investment, usually for capital appreciation in its value or to make particular purchases. They will be liable to pay capital gains tax when they dispose of their cryptoassets.

Individuals will be liable to pay income tax and National Insurance Contributions (NICs) on cryptoassets which they receive from:

  • an employer as a form of non-cash payment;
  • mining, transaction confirmation or airdrops.

There may be cases where the individual is running a business which is carrying on a financial trade in cryptoassets and will therefore have taxable trading profits. This is likely to be unusual, but in such cases income tax would take priority over the capital gains tax rules.

Companies are subject to corporation tax on their profits and gains. Corporation tax also applies to companies that are members of a partnership or a limited liability partnership in respect of their share of the partnership profits and gains.

Capital gains tax treatment

HMRC generally treat the buying and selling of cryptoassets by an individual as an investment activity rather than a trade. This means that if an individual invests in cryptoassets they will typically have to pay capital gains tax on any gains they realise.

Cryptoassets count as a 'chargeable asset' for capital gains tax if they are:

  • capable of being owned; and
  • have a value that can be realised.

Individuals need to calculate their gain or loss when they dispose of their cryptoassets.

A 'disposal' is a broad concept and includes:

  • selling cryptoassets for money
  • exchanging cryptoassets for a different type of cryptoasset
  • using cryptoassets to pay for goods or services
  • giving away cryptoassets to another person

If cryptoassets are given away to another person who is not a spouse or civil partner, the individual must work out the pound sterling value of what has been given away. For CGT purposes the individual is treated as having received that amount of pound sterling even if they did not actually receive anything.

Allowable costs

Certain costs can be allowed as a deduction when calculating if there's a gain or loss, which include:

  • the consideration (in pound sterling) originally paid for the asset
  • transaction fees paid before the transaction is added to a blockchain
  • advertising for a purchaser or a vendor
  • professional costs to draw up a contract for the acquisition or disposal of the cryptoassets
  • costs of making a valuation or apportionment to be able to calculate gains or losses

The following do not constitute allowable costs for CGT purposes:

  • any costs deducted against profits for income tax
  • costs for mining activities (for example equipment and electricity)

Costs for mining activities do not count toward allowable costs because they're not wholly and exclusively to acquire the cryptoassets, and so cannot satisfy the requirements of TCGA 1992, s 38(1)(a) (but it is possible to deduct some of these costs against profits for income tax or on a disposal of the mining equipment itself).

Pooling

Pooling allows for simpler CGT calculations.

Pooling applies to shares and securities of companies and also "any other assets where they are of a nature to be dealt in without identifying the particular assets disposed of or acquired".

HMRC believe cryptoassets fall within this description, meaning they must be pooled.

Instead of tracking the gain or loss for each transaction individually, each type of cryptoasset is kept in a 'pool'. The consideration (in pound sterling) originally paid for the tokens goes into the pool to create the 'pooled allowable cost'.

For example, if a person owns bitcoin, ether and litecoin they would have three pools and each one would have its own 'pooled allowable cost' associated with it. This pooled allowable cost changes as more tokens of that particular type are acquired and disposed of.

If some of the tokens from a pool are sold, this is considered a 'part-disposal'. A corresponding proportion of the pooled allowable costs would be deducted when calculating the gain or loss.

Individuals must still keep a record of the amount spent on each type of cryptoasset, as well as the pooled allowable cost of each pool.

Further information on cryptoassets tax for individuals can be found on the gov.uk website at https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-for-individuals.

Information on cryptoassets tax for businesses can be found on the gov.uk website at https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-tax-for-businesses.

Addlestone Office

CGT on cryptoassets

Andrew has been working in accountancy practices since leaving school at 16 and has over 30 years of experience dealing with all aspects of small and medium size businesses, personal and corporate tax issues.

He has been a partner since 1995 and has a wide and varied general practice background.

Andrew has extensive knowledge of many areas of business, accountancy and tax and is able to draw on his experience and knowledge to give clients comprehensive advice on a wide range of matters.


CGT on cryptoassets

Keith joined Turner Hampton in May 2001, as tax partner. He qualified with a medium sized provincial firm in 1994 before moving to the City to join a top six firm where he specialised in multi-national partnership tax.

He has a wealth of experience in dealing with small owner managed businesses through to larger national organisations and those with interests abroad.

Keith, currently oversees the personal tax and corporation tax compliance and planning strategies of taxation for our clients.


CGT on cryptoassets

Marc joined the accountancy profession in 2006 and trained with a top 50 firm before qualifying in 2010. Marc joined Turner Hampton in the same year because he was excited about the challenge of taking on a more hands-on role with clients.

Marc’s focus is on helping individuals with their businesses – from sole trades to large corporates – and guiding them through the red tape that often comes with accounting. Marc enjoys helping clients spot opportunities that can contribute to their businesses being successful, and assisting them with the real nitty-gritty, without losing the overview. Marc gets the biggest pleasure from his work when he is able to help clients save money or achieve something they may be striving towards.

Outside of work, Marc enjoys watching and playing all sports, listening to music, going to concerts and eating out.


CGT on cryptoassets

Vaughn is an ACCA & AAT qualified accountant, Vaughn joined CSL in 2016 and believes his 17 years of experience has allowed him to gain a vast knowledge in dealing with all aspects of small businesses, personal tax and corporate tax issues.

Vaughn is a strong believer in building good client relationships. He feels that by understanding the specific needs of each client, he is able to offer more sound and efficient tax advice.

Outside of work Vaughn is a keen sportsman. If he isn’t enjoying time with his family, he can often be found walking many of Surrey’s local golf course fairways or attending sporting events.


CGT on cryptoassets

Melanie joined CSL Partnership in April 2017 as a senior accountant. She is ACCA qualified with over 10 years experience working within practice. Melanie works with a wide range of clients and provides advice to owner-managed businesses and personal tax clients on accountancy and taxation matters.


CGT on cryptoassets

Cindy joined CSL Partnership in 2007. She is an ACA qualified accountant with over 20 years of accountancy experience working within both practice and business.


CGT on cryptoassets

Colin has worked in the accountancy profession for over 35 years during which he has gained a great deal of experience working on a diverse range of small and medium sized businesses along with sole trades and partnerships.

His areas of expertise lay within accounting, auditing, personal and business tax matters.

He is passionate about the role which small and medium sized businesses play in today’s market and how the accountancy profession can best serve their needs.


CGT on cryptoassets

Carole has been a bookkeeper and payroll clerk for over 25 years and is qualified by experience. She has recently become involved in the process of auto enrolment for pensions. Over the years she has been self-employed but more recently employed in accountancy practices around the area.


CGT on cryptoassets

Karen joined the practice in early 2019 as our Administrator/Receptionist and brings 15 years previous experience to the role. She ensures the office runs smoothly and efficiently providing back up and resources to the professional staff allowing them to focus on client matters. Karen is a very cheerful individual and always happy to help. In her spare time Karen enjoys spending time with her family.


CGT on cryptoassets

Martin joined CSL Partnership in November 2019 returning to practice after spending the previous 8 years working in Industry. He is an AAT qualified accountant and has spent over 20 years working in the profession.

Martin works on all manner of clients from sole traders to large limited companies. He is an avid user of new software and technology to improve how he and clients work together and will always look to find a way to make life simpler for the client so they can focus on running the business rather than stressing over the accounts.


CGT on cryptoassets

Ian joined Turner Hampton in 2016 and has worked in the accountancy profession for over 30 years.


Woking Office

CGT on cryptoassets

Emma has worked in accountancy practices for over 20 years and qualified as a Chartered Certified Accountant in 2000. She has gained experience in all aspects of the accounting and auditing functions, developing exposure to a broad range of clients.

Emma advises owner-managed businesses and personal tax clients on accountancy and taxation matters. She has a particular expertise on systems review and implementation.

She has worked for CSL Partnership since it formed in 2001, becoming a director in 2005 and now manages the Woking office.


CGT on cryptoassets

Philip has worked in various accountancy practices since the age of 19 and joined CSL Partnership in 1998 where he qualified in 2008.

He works with individuals, sole traders and limited company businesses to assist them with all their accounting and taxation requirements.


CGT on cryptoassets

Andy has worked in accountancy since 2010 and joined CSL Partnership in April 2018. He has experience in a wide range of sectors, and has enjoyed working with individuals, sole traders and limited companies of varying sizes and needs. Outside of the office, you’ll find Andy on a hockey pitch or listening to music.


CGT on cryptoassets

Lesley joined Turner Hampton in 2003, having previously worked both in accounts departments and in practice. She has been running client payrolls since joining the company and has gained many years of experience in payroll. Lesley now processes all aspects of payroll for both Turner Hampton and CSL Partnership clients.


CGT on cryptoassets

Gail joined the firm in May 2018 and has worked in accountancy practices as a bookkeeper and payroll clerk since 2013. Historically, Gail has been self-employed and worked for companies in the financial and customer service sectors.

She is a full member of AAT. When not working, she enjoys hiking, mountain biking and yoga.


CGT on cryptoassets

Marrieclaire is a bookkeeper, she processes payroll and maintains the accounting records to prepare VAT Returns and CIS Returns. Marrieclaire is a qualified Chartered Management Accountant with varied industry experience.


CGT on cryptoassets

Elaine joined in June 2017. Prior to this she worked in a number of different industries including fast moving consumer goods and mechanical & electrical consultants.

She is a fellow member of AAT having completed the qualification in 1997.


CGT on cryptoassets

Natasha joined CSL Partnership in October 2019, having worked in accountancy since 2017. Natasha has experience completing payrolls, bookkeeping, VAT returns & CIS returns. She is currently a trainee accountant, looking to become qualified in the coming years.


CGT on cryptoassets

Wendy joined CSL in April 2019 as a Part-Time receptionist and administrator after 25 years working as an office manager in the design world. She is more than happy meeting and greeting clients and working with such a great team of people in the Woking Office. In her spare time Wendy enjoys tennis, yoga and pilates.


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