Bitcoin (BTC) was the first popularised cryptocurrency. Like many other digital currencies, Bitcoin enables you to send money online without an intermediary (e.g. a bank). In the beginning, Bitcoin transactions were all anonymous, but today they are more easily traceable.
BTC is created by “mining” (which involves solving a specific algorithm), and it can be done on a personal or specialised computer. You can also buy Bitcoin on a cryptocurrency exchange e.g. Coinbase.
In the UK, bitcoins are considered taxable assets.
If you earn bitcoins through mining, this is considered income and you’ll need to pay Income Tax on their value calculated in GBP. You might also be liable for National Insurance. That said, you can expense your mining equipment (computers, electricity, and maintenance).
If you sell BTC for a profit, you may need to pay Capital Gains Tax (CGT) on the profit.
You can claim this loss against other income (for mined bitcoins) or capital gains (for sold bitcoins), either this tax year or the next.
This is called offsetting or carrying a loss forward. To claim a loss or pay either Income Tax or Capital Gains Tax on your bitcoin earnings, you’ll have to file a Self Assessment tax return.
When you first start your business, there’s a lot to navigate with your accounts, so let our team help you get set up! Our experts are well versed in Balancing Payments and accounting, so contact us today.
Of course! We advise that you start a comprehensive spreadsheet to keep track of your taxable income and relevant expenses throughout the year in order to make your tax return more straightforward. This can be done on an Excel spreadsheet or Google sheet to keep things simple! Contact our team for more advice today!