A cryptocurrency is a part of digital or virtual currencies (the electronic money), that uses strong cryptography to secure the process of transaction record entries, control the formation of extra digital currency records, along with verifying the transfer of currency ownership.
Bitcoin is one of the widely used and favored cryptocurrencies among the digital currency traders however there is no specific legislation specified by HMRC which puts it under taxation. But the case is such that HMRC believes that the existing legislation is sufficient to impose any necessary tax.
Bitcoin’s value rose more than 19 times within the span of a year from $1000 to over $19,000 which has enabled a lot of owners to sell all or part of their investment. In the event a person is mining bitcoins then HMRC will consider this as a trade and will charge any profits to national insurance and income tax. Income and expenses would need to be calculated in sterling each year with the profits reported to HMRC and tax duly paid. Any expenses claimed would need to relate solely and specifically to the trade of mining.
When a person purchases bitcoins HMRC will regard any increase in value as being liable to capital gains tax. Tax will only crystallise when the bitcoins are converted into another currency, be it sterling or dollars or even another cryptocurrency. Capital gains tax is currently charging at ten percent or 20 percent (or a mixture) depending on the level of the taxpayer’s other income.
For instance, someone has held onto bitcoins for a long time and the profit is mostly due to their appreciation in value, it’s the capital gain tax that has to be paid which is pretty low. However, if someone has been trading actively, then it will fall under income tax.
There could be numerous other situations where you might find yourself stuck into regarding the trading of bitcoins. In such a case it is better advisable to contact an expert accountant who can help you with bitcoin tax solutions. If you want a solution in an instant, then please feel free to drop in a query and our counselors will get back to you (free of cost!)