The answer is probably YES!
If you dispose of cryptoassets (cryptocurrency) then you may need to pay Capital Gains Tax (CGT) on gains made between 6th April 2020 and 5th April 2021.
And the deadline to report this is 31st January 2022!
You may have received a letter from HMRC regarding this, if not it could be on its way, so we wanted to explain this a little further.
When you dispose of cryptoassets you own – either by selling them, using them to buy goods or services, giving them away to someone other than your spouse or civil partner, or exchanging them for a different type of cryptoasset, you may be liable to pay Capital Gains Tax.
What is a 'disposal'?
A disposal of cryptoassets is when you:
- Sell cryptoassets for fiat currency (USD or GBP). Gains from these transactions are taxable, even if the money you make is not 'withdrawn' from the cryptoasset exchange.
- Exchange one cryptoasset for another, for example Bitcoin to Ether. You must pay CGT on these gains, even if you haven't converted your cryptoassets back to fiat currency. It's this one – swapping one kind of cryptocurrency for another, that can often catch people out. Because the individual is not benefiting from any profit at the time of the exchange, they do not believe that HMRC needs to be informed. But this isn't the case. As far as HMRC is concerned, disposing of the original cryptocurrency counts as a taxable transaction and must be reported.
- Use cryptoassets to buy goods or services.
I've exceeded my annual tax allowance - do I have to pay CGT?
You must pay CGT if your total gains arising from all disposals in a tax year are over the annual tax- free allowance. For the tax year 2020 to 2021, this was £12,300. This allowance is not exclusive to cryptoassets, it also covers any disposal of other assets, such as shares, or property. Your gain (or profit) will normally be the difference between what you paid for an asset and what you sold it for (but there is a different way of calculating your gain if you sell cryptoassets within 30 days of buying them). If you make a loss, you may be able to use this to reduce the CGT due on other gains.
If you're a higher rate taxpayer, CGT will be payable at 20% on your profits. If you are a basic rate taxpayer, the rate at which CGT will be paid is 10% on anything over £12,300 and to the extent the gain stays below the higher rate threshold.
What can we do to help?
- We can review your cryptoasset transactions.
- If you've made gains that exceed your annual exempt amount, we'll let you know what you must pay and do.
- Even if you don't think you have made a profit, please let us know as a you may be able to carry a taxable loss across into the next tax year to be offset against future gains.
Calculations can be complex if you exceed your annual tax- free allowance.
The most important part - you need to report gains made during the 2020/21 tax year by filing a Self-Assessment tax return before 31 January 2022.
If you've not yet registered for Self-Assessment, you'll have to do this before you can file a tax return. You need do this as soon as possible, as the registration process can take up to 4 weeks, and if you've not paid any tax you owe in full by 31 January 2022, you may have to pay a penalty.
Also, if you owe tax for previous years, interest could be charged on the amounts due.
Please get in touch so we can ensure you are reporting correctly and more importantly – on time.
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