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Guidance on Crypto Assets and Liabilities as per HMRC Requirements

Overview

HMRC has specific guidelines on the taxation of crypto assets and liabilities. It’s essential to understand these requirements to ensure compliance and optimize your tax position. Below is a detailed tax advice guide based on HMRC directives.

Key Points for Individuals

1. Taxable Events

   • Buying and Selling: Selling crypto assets for fiat currency or other cryptocurrencies.
   • Exchanging: Swapping one crypto asset for another.
   • Using as Payment: Using crypto assets to pay for goods or services.
   • Mining and Staking: Income from mining and staking activities.

2. Capital Gains Tax (CGT)

   • Calculation: Capital gains tax is payable on the profit made from selling crypto assets.
   • Allowable Costs: Include purchase price, transaction fees, and costs of advertising for a buyer or seller.
   • Annual Exemption: Each individual has an annual CGT exemption (£12,300 for the 2023/24 tax year).
   • Reporting: Capital gains need to be reported on a self-assessment tax return. Losses can be used to offset gains in the same tax year or carried forward.

3. Income Tax

   • Earnings from Employment: Crypto assets received as payment for employment are subject to Income Tax and National Insurance Contributions (NICs).
   • Mining and Staking: Income from mining and staking is subject to Income Tax, with allowable deductions for expenses related to these activities.
   • Airdrops and Forks: Tax treatment depends on the nature of the receipt. If received in return for a service, it’s subject to Income Tax.

4. Record Keeping

   • Maintain detailed records of all transactions, including dates, amounts, and values in GBP at the time of each transaction.
   • Records of the cost basis, disposal proceeds, and any associated transaction fees should be kept.

Key Points for Businesses

1. Trading vs. Investing

   • Trading: Businesses trading in crypto assets must pay Income Tax or Corporation Tax on trading profits.
   • Investing: If crypto assets are held as investments, any gains are subject to Corporation Tax on chargeable gains.

2. Valuation and Accounting

   • Valuation: Crypto assets should be valued at the fair market value on the date of the transaction.
   • Accounting Standards: Follow relevant accounting standards for recording and reporting crypto assets.

3. VAT

   • Crypto as Payment: When crypto assets are used as payment, VAT is due on the goods or services supplied, not on the crypto asset itself.
   • Exchanges and Brokerage Services: Most activities involving the exchange of crypto assets for fiat currency are exempt from VAT.

4. Employee Payments

   • Crypto assets given to employees as part of their remuneration package are subject to PAYE and NICs.
   • Employers must report the value of the crypto assets at the time of payment.

Practical Steps for Compliance

1. Use Reliable Tools

   • Utilize crypto accounting software to track transactions and calculate gains/losses accurately.
   • Tools like CoinTracker, Koinly, or CryptoTrader.Tax can simplify record-keeping and reporting.

2. Professional Advice

   • Seek advice from tax professionals with experience in crypto taxation to ensure compliance and optimize your tax position.
   • Consider periodic reviews of your crypto transactions to stay updated with any changes in HMRC guidelines.

3. Regular Reporting

   • File self-assessment tax returns accurately and on time.
   • For businesses, ensure regular filing of VAT returns and corporate tax returns as applicable.

Example Calculation for Individuals

• Purchase: 2 BTC bought at £20,000 each.
• Sale: 1 BTC sold at £30,000.
• Allowable Costs: £100 transaction fees.

Capital Gains Calculation:

• Proceeds: £30,000
• Cost Basis (1 BTC): £20,000 + £50 (half of transaction fees)
• Gain: £30,000 - £20,050 = £9,950

If this gain falls within the annual CGT exemption, no tax is due. Otherwise, it’s subject to CGT at 10% or 20%, depending on the individual's income tax bracket.

Conclusion

Crypto assets and liabilities are subject to specific tax treatments under HMRC guidelines. By understanding taxable events, keeping meticulous records, and seeking professional advice, individuals and businesses can ensure compliance and optimize their tax positions. For personalized advice, consult with a tax advisor experienced in cryptocurrency taxation.

Cycle to Work Scheme

Overview

The Cycle to Work Scheme offers a tax-efficient way to obtain a bicycle and associated equipment through salary sacrifice, resulting in savings on tax and National Insurance for employees. Employers also benefit from reduced National Insurance contributions.

Key Points for Employees

1. Eligibility and Enrolment
   • Employees must be over 16, earning at least the National Minimum Wage after the salary sacrifice deduction.
   • Enrolment is typically done through the employer, who will have a provider or arrangement in place.
2. Salary Sacrifice Arrangement
   • Employees agree to a salary reduction in exchange for the use of a bicycle and safety equipment.
   • The salary sacrifice must not bring the employee’s gross pay below the National Minimum Wage.
3. Tax and National Insurance Savings
   • Employees save on Income Tax and National Insurance contributions as the cost of the bicycle is deducted from gross salary.
   • For a basic rate taxpayer, this could mean a saving of up to 32% on the cost of the bike and equipment.
4. Equipment Covered
   • Bicycles and cycling safety equipment are eligible, including helmets, lights, locks, and reflective gear.
   • The scheme does not cover accessories that are not safety-related, such as cycle clothing.
5. Ownership and End of Hire Period
   • Initially, the employer technically owns the bicycle.
   • At the end of the hire period (typically 12 to 18 months), employees can usually choose to extend the hire period, purchase the bike at fair market value, or return it.
   • HMRC has set standard fair market values, typically 18% to 25% of the original price after five years.
6. Using the Bicycle
   • The bicycle should be used primarily for commuting to work and work-related activities, although personal use is allowed.

Key Points for Employers

1. Setting Up the Scheme
   • Employers can set up the scheme through a third-party provider or administer it in-house.
   • Ensure compliance with HMRC rules on salary sacrifice and National Minimum Wage.
2. Financial Benefits
   • Employers save on National Insurance contributions on the amount of salary sacrificed by employees.
   • Offering the scheme can improve employee satisfaction and reduce absenteeism due to better health and well-being.
3. Administration and Compliance
   • Maintain clear records of the salary sacrifice arrangements.
   • Ensure the scheme is available to all employees on an equitable basis.
   • Report the benefits correctly on the annual P11D form or via PAYE Settlement Agreement if applicable.
4. Asset Management
   • Keep track of the bicycles as assets during the hire period.
   • Handle the transfer of ownership at the end of the hire period according to HMRC’s fair market value guidelines.

Example Calculation for Employees

• Cost of Bike and Equipment: £1,000
• Salary Sacrifice Duration: 12 months
• Monthly Salary Sacrifice: £83.33

Savings Calculation (Basic Rate Taxpayer):

• Income Tax Saving: £200 (20% of £1,000)
• National Insurance Saving: £120 (12% of £1,000)
• Total Saving: £320

Thus, the effective cost of the bike and equipment would be £680 instead of £1,000.

Conclusion

The Cycle to Work Scheme offers significant benefits for both employees and employers, promoting healthier lifestyles and reducing environmental impact. Employees can save on the cost of a bicycle and equipment, while employers benefit from reduced National Insurance contributions and a healthier, more motivated workforce. For specific advice tailored to individual circumstances, consult with Berkeley Accountans.