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UK Crypto Tax: How to Calculate HMRC Taxes Due on Cryptocurrency Investments, Profits

Published November 1, 2023 4:26 PM
Josh Adams
Published November 1, 2023 4:26 PM
Key Takeaways
  • UK taxpayers are required to file their tax return by January 31st, 2024.
  • It’s important to declare your earnings to avoid penalties.
  • Here we’ve included a simple guide to get it right.

Cryptocurrency investments are rising in popularity, with 1 in 10 UK adults  holding some kind of crypto assets. Understandably, many UK investors are wondering how to correctly calculate and pay tax on their crypto earnings. 

His Majesty’s Revenue and Customs (HMRC) has clear guidelines on crypto taxes that every investor needs to understand. Follow our simple guide to calculate your tax liability and avoid any penalties from HMRC.

What To Know About UK Crypto Taxes

In the UK, cryptocurrency taxes fall under Capital Gains Tax  (CGT) rules. This means you’ll pay CGT on any profits when you dispose of crypto assets that have increased in value.

Your overall income level determines what rate you’ll pay. If your total income is below £50,270, you’ll pay 10% CGT on crypto profits. Above this threshold, it’s 20% CGT. An annual tax-free CGT allowance of £12,300 applies to all individuals.

You’ll also get a £1,000 tax-free Trading Allowance  if you earn income from mining or staking crypto – so the first £1,000 is tax-free.

How To Calculate Your Crypto Tax Bill

Figuring out precisely what you owe HMRC takes careful calculations. Here’s a quick, step-by-step guide:

  1. Note down all crypto buy and sell transactions for the tax year, including dates, assets, amounts and prices paid.
  2. For each disposal, deduct the buy price from the selling price to get your capital gain or loss per transaction.
  3. Add up all your capital gains and deduct any capital losses.
  4. Deduct the £12,300 CGT allowance to get your net gain.
  5. Apply the appropriate CGT rate depending on your income – either 10% or 20%.

This gives your total CGT bill. Pay any mining or staking income above £1,000 at your Income Tax rate .

Using A Crypto Tax Calculator

Doing these calculations for dozens of trades can be extremely complex. That’s where a crypto tax calculator becomes invaluable, and there are plenty of ready-made solutions on the market. Most allow you to upload or connect with exchanges and wallets.

Once you’ve found the platform you like, simply upload your transaction history into the calculator. Most will handle CGT computations automatically and generate a tax report. Each service will have its own rules and unique features, so make sure you get in contact with the service provider if you need assistance.

For those crypto traders and holders without experience filing a personal tax return, these platforms take the hard work out of reporting to HMRC. You’ll know precisely what tax you owe on crypto profits.

Don’t Forget Record Keeping

Thorough record-keeping is crucial for accurate tax calculations. Keep notes of:

  • Date, type, and amount of every crypto transaction
  • Fair market value in GBP at the time
  • Any related fees or expenses

With detailed records, a tax calculator can swiftly do the number crunching to determine your CGT obligations.

Stay Compliant With HMRC

Paying tax on crypto gains is compulsory, not optional. With tips from our guide and a quality tax calculator, you can easily stay compliant with HMRC. Report your crypto profits accurately and on time to avoid headaches later on.

If you’re a user of any centralized cryptocurrency exchanges, be extra vigilant. Kraken, a US-based exchange, has recently been forced to hand over thousands of American users’ details to the IRS for tax purposes. Whilst this does not include the UK, there is no guarantee it won’t forever.

And remember, in all jurisdictions, the burden of proving your tax compliance rests on your shoulders, not on the tax authorities.

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