8 common crypto tax mistakes that could cost you

8 common crypto tax mistakes that could cost you

Here are eight common crypto tax mistakes to watch out for.

1. Assuming crypto-to-crypto exchanges are tax-free

Swapping Bitcoin, Ethereum or another cryptoasset for a different token can amount to a disposal for CGT purposes. You do not necessarily have to convert your crypto into pounds for a taxable event to occur.

2. Forgetting that spending crypto can trigger CGT

Using cryptoassets to pay for goods or services can also constitute a disposal. Any gain or loss may therefore need to be calculated and included in your tax records. 

3. Assuming every crypto gift is tax-free

Giving cryptoassets to another person can be a disposal for CGT purposes. Different treatment generally applies to gifts to a spouse or civil partner, so it is important to consider who receives the assets as well as their value.

4. Overlooking income from staking, mining and DeFi

Rewards or returns from crypto staking, mining, lending and DeFi can have Income Tax implications, depending on exactly how the activity and transaction are structured.

DeFi can be particularly complex because the tax treatment may depend on the contractual arrangement and whether beneficial ownership of the cryptoassets changes.

5. Missing tax on crypto received through employment

Cryptoassets received from an employer as non-cash payment can be subject to Income Tax and National Insurance contributions. 

6. Not keeping adequate crypto transaction records

Accurate records are essential when calculating your UK crypto tax position, particularly if you use several exchanges, wallets, blockchains or DeFi protocols.

Keep clear records of transactions rather than assuming an exchange's reports will give you everything necessary to complete your tax calculations.

7. Using the wrong valuations

UK tax calculations need to be made in pounds sterling. With frequent trades and potentially significant price movements between transactions, getting valuations and transaction data right is an important part of producing an accurate tax calculation.

8. Failing to report taxable crypto income or gains

If your activity has generated taxable income or gains, you may need to report these to HMRC.

And if you discover that crypto tax should have been reported in an earlier year, don't simply ignore it. HMRC provides a specific voluntary disclosure route for previously unpaid tax relating to cryptoassets, including exchange tokens, NFTs and utility tokens. The period that needs to be disclosed can depend on the circumstances behind the underpayment.

Not sure if your crypto activity has created a tax liability?

Crypto tax becomes more challenging when transactions span multiple wallets, exchanges, staking arrangements and DeFi platforms. Getting advice early can help you understand what needs to be reported and avoid unwelcome surprises.

Our Crypto Tax specialists can help review your transaction history, calculate your tax position and deal with historic disclosures where required. And where crypto forms part of your wider finances or investment position, our Personal Tax team can help you look at the bigger tax-planning picture too. Call us on 01380 723692 or email us here.