Crypto Accountant

In the UK, you may be subject to Capital Gains Tax when you dispose of an asset, including cryptocurrency, for more than you paid for it. We understand that CGT on crypto can be tricky, so here's how Prescient Accounting can help...

• Calculating Your CGT Liability – We'll assign a crypto tax accountant to work with you to determine your exact gain by considering the purchase price (including any transaction fees) and the disposal price (the value you received when selling your crypto). 
• Maximising Your Annual Allowance - Everyone in the UK benefits from a yearly Capital Gains Tax-free allowance of £6,000. We'll ensure you take full advantage of this allowance to minimise your tax burden. 
• Exploring Potential Reliefs - Depending on your circumstances, you might qualify for additional reliefs that further reduce your CGT liability. We'll explore all relevant options, such as losses from other asset disposals, to offset your crypto gains. 

CGT might apply to different crypto scenarios, so here are a couple of examples: 

Selling Crypto for Profit 

If you sell your crypto for more than you bought it, the difference is considered a capital gain, and depending on whether it exceeds your annual allowance, you may need to pay Capital Gains Tax. 

Trading Crypto Frequently 

HMRC might view frequent trading activity as a business venture, potentially pushing you towards income tax instead of CGT. We can help you understand the distinctions and ensure you're taxed correctly.

For Capital Gains Tax purposes, "pooling crypto" refers to a method for calculating your cost basis, known as the Section 104 pooling method.  

What is Cost Basis?  

Your cost basis is the original purchase price of your crypto asset, including any fees associated with the purchase. It's crucial for calculating capital gains or losses when you dispose of your crypto (selling, trading, etc.). 

Why Pooling?  

Cryptocurrencies are often treated as "fungible assets," meaning individual units are identical and interchangeable. Unlike buying and selling specific shares of stock, with crypto, you might buy crypto at different times and at different prices. Pooling allows you to avoid tracking the specific cost basis for each individual crypto unit you own. 

How Pooling Works 

Under Section 104, you can group all your holdings of a specific cryptocurrency into a single "pool." The cost basis for this pool is then calculated as the total amount you spent acquiring all your crypto in that pool, divided by the total number of units you hold. 

Benefits of Pooling 

This method simplifies CGT calculations, especially if you've made numerous crypto purchases at different prices. Instead of tracking individual cost bases, you use the average cost basis for the entire pool. 

Important Considerations 

Pooling applies to each type of cryptocurrency separately. For example, you would have a separate pool for Bitcoin and another for Ethereum. 

Pooling doesn't apply to Non-Fungible Tokens (NFTs). Since NFTs are unique by design, you need to track the cost basis for each individual NFT. 

An example of pooling: 

• You buy 1 Bitcoin for £5,000 in January. 
• Later, you buy another 2 BTC for £8,000 each (total £16,000). 
• Your total cost for 3 BTC is £21,000. 
• Using pooling, your average cost basis per BTC is £21,000 (total cost) divided by 3 BTC, which comes to £7,000. 

If you then sell 1 BTC for £10,000, your capital gain would be £10,000 (selling price) - £7,000 (average cost basis), which equals £3,000. 

It's important to note: 

• Pooling can be advantageous if you've bought crypto at different times and the overall price has increased. 
• However, if the price has decreased, pooling might not be as beneficial for minimising your capital gains tax liability.

HMRC allows this method for calculating your cost basis for capital gains tax purposes. It simplifies calculations by using an average cost for all your holdings of a specific cryptocurrency. Our crypto tax consultants can help you determine if pooling is the most beneficial strategy for your specific situation.

While Capital Gains Tax applies to profits from selling crypto assets, income tax comes into play when you're actively generating income through your crypto holdings. Prescient Accounting can help you understand the implications of various crypto activities, such as: 

• Crypto Trading – As mentioned above, if you frequently buy and sell cryptocurrencies, your activity might be considered "trading income" by HMRC. This means the profits you generate from these trades could be subject to income tax at your marginal rate (either 20%, 40%, or 45%, depending on your income level). We can assess your trading activity and advise you on the best way to report it for tax purposes. 
• Crypto Mining - If you participate in mining cryptocurrencies, the rewards you receive in the form of new coins are generally considered income and may need to pay income tax. We can help you determine the taxable value of your mining rewards and ensure you're reporting them accurately. 
• Staking Rewards - Staking involves locking up your crypto assets to support a blockchain network and earn rewards in return. These rewards can be treated as income for tax purposes. We can advise you on the appropriate tax treatment for your staking activities based on the specific staking platform and rewards structure. 
• Other Crypto Income Streams - There are various ways to earn income through the crypto space, such as airdrops, lending your crypto assets, or participating in DeFi (Decentralised Finance) protocols. We can help you understand the challenges surrounding these activities and ensure you're compliant with HMRC regulations. 

Don't let the ever-evolving world of crypto income leave you confused about your tax obligations. Prescient Accounting will guide you through the complex challenges and ensure you're reporting your crypto income accurately and efficiently.

Unlike income tax, National Insurance contributions are generally not triggered by simply buying, holding, or selling cryptocurrency on exchanges.

Even so, there are some exceptions where your crypto activity might generate income that is subject to National Insurance: 

• Crypto as "Money's Worth" - If you receive crypto as payment for goods or services, it's considered "money's worth" and subject to National Insurance contributions, similar to receiving regular income. 
• Staking Rewards - Rewards earned through staking cryptocurrency might be considered income and subject to NI, depending on the specific staking platform and how the rewards are structured. 

National Insurance Thresholds 

National Insurance contributions are only applied to income that exceeds a certain threshold. As of April 2024, the National Insurance Lower Earnings Limit is £12,570 per year. You wouldn't pay National Insurance on any crypto-related income below this threshold. 

Importance of Record Keeping! 

It's crucial to keep clear records of your crypto transactions, especially if you receive crypto for goods or services or participate in staking activities. This will help you determine your potential National Insurance liability and ensure accurate reporting. 

Prescient Accounting’s specialist accountants for cryptocurrency will assist you in keeping track of all transactions, ensuring that everything is documented accurately.

Cryptocurrency is a relatively new asset class, and its treatment for inheritance tax (IHT) purposes is still evolving. However, at Prescient Accounting, we understand the importance of planning for your crypto legacy.  

Here's how our specialist tax advisers can help: 

• Understanding IHT Implications - Crypto assets are considered part of your estate for IHT purposes, just like property or stocks. This means their value will be included when calculating your potential IHT liability. We'll explain how this could impact your beneficiaries. 
• Minimising IHT on Crypto Holdings - There are various strategies to minimise the IHT burden on your crypto holdings. We can explore options such as using your tax-free allowance, using spousal exemptions, or gifting your crypto assets strategically (outside of the seven-year window to avoid potential inclusion back into your estate).
• Effective Communication with Beneficiaries - It's important to communicate your crypto holdings and any relevant access information to your beneficiaries. We can help you develop a clear communication plan to ensure a smooth inheritance process. 

By planning ahead, you can minimise the IHT burden on your crypto assets and ensure your loved ones receive your digital legacy efficiently. Prescient Accounting can guide you through the obstacles of IHT and crypto inheritance tax planning.

If you're a UK resident involved in crypto activities, you might need to file a Self-Assessment tax return, and a crypto tax accountant can be a valuable asset in this process.  

Your dedicated cryptocurrency accountant will help with the following issues: 

Identifying Crypto Transactions for Tax Reporting 

• Unearthing Hidden Transactions - Crypto transactions can occur on various platforms and wallets. Crypto tax accountants are adept at gathering information from all your sources, ensuring a complete picture of your crypto activity for tax purposes. 
• Classifying Financial Transactions Accurately - Not all crypto transactions are treated equally for tax. Accountants can distinguish between taxable events (like selling crypto for profit) and non-taxable ones (like transferring crypto between your own wallets). 
• Calculating Cost Basis - Determining the cost basis (the original purchase price) of your crypto is crucial for calculating capital gains or losses. Accountants can help you track down this information or employ industry-standard methods for estimating it. 

Preparing Accurate Tax Forms 

• Forms SA100 and SA108 - These forms are crucial for reporting capital gains and losses on crypto assets. Crypto tax accountants can ensure these forms are filled out accurately with the correct figures and calculations. 
• Income from Crypto Activities - Activities like mining, staking, and airdrops can generate income that needs reporting. Accountants understand the tax implications of these activities and will include them in your Self-Assessment. 
• HMRC Tax Compliance - HMRC regulations regarding crypto are constantly evolving. Crypto tax accountants regularly check for these changes and ensure your return adheres to current guidelines. 

Optimising Your Tax Return 

• Capital Gains Tax Allowances - You have an annual capital gains tax-free allowance of £6,000. Accountants can help you maximise this allowance to minimise your tax burden. 
• Matching Gains and Losses - If you have both crypto gains and losses in a tax year, accountants can strategically pair them to offset your taxable income and potentially reduce your tax bill. 

Professional Advice When You Need It! 

• Dealing with Complexities - Crypto tax can be a complex area, especially with frequent trading or involvement in DeFi protocols. Accountants can handle the complexities and help resolve any problems. 
• Answering Your Questions - As you navigate the crypto landscape, you'll likely have questions about tax implications. Accountants can be a valuable resource, providing continual support and addressing your concerns. 
• Avoiding Mistakes - Filing a Self-Assessment with inaccurate information can lead to penalties. Accountants can help you avoid costly mistakes and ensure your return is filed correctly. 

By working with a Prescient Accounting crypto tax accountant, you can ensure your Self-Assessment accurately reflects your crypto activity, minimises your tax burden, and gives you peace of mind during tax season.

Maintaining detailed records for every crypto transaction, including: 

• Date/time of the transaction 
• Type of transaction (buy, sell, transfer, swap, etc.) 
• Description of the transaction (e.g., exchange used, name of the other party) 
• Amount of crypto involved (including fees) 
• Price per unit of crypto at the time of the transaction 
• Cost basis of the crypto involved (original purchase price + any fees)

Downloading and storage of regular statements from all the crypto exchanges and wallets you use. These statements typically provide a comprehensive record of your activity on the platform.

Securely storing your private keys and any relevant information about your crypto wallets. This ensures you can access your holdings and demonstrate ownership to HMRC if needed.

They’ll establish a system that works for you, whether it's a dedicated spreadsheet, accounting software, or cloud-based record-keeping tools designed specifically for cryptocurrency. 

Encouraging you to maintain your crypto transaction records for at least five years after the tax year they relate to. This aligns with HMRC's general record-keeping requirements for tax purposes. 

By following these steps, you'll have a clear and documented history of your crypto activity, making it easier to complete your tax returns and demonstrate compliance with HMRC regulations.

Crypto accountant services involve specialised accounting and tax compliance support for individuals and businesses dealing with cryptocurrencies. These services ensure accurate reporting and adherence to HMRC regulations.

A crypto accountant can help with tax compliance in the UK by accurately calculating your tax obligations on cryptocurrency transactions. They ensure all crypto activities are reported correctly to HMRC, minimising the risk of penalties.

Yes, you need a specialised accountant for cryptocurrency investments to ensure accurate tax reporting and compliance. Crypto accountants have expertise in handling the complexities of digital assets and HMRC guidelines.

The benefits of using a crypto accountant include expert guidance on tax compliance, accurate transaction tracking, and strategic tax planning. They help you navigate the complex regulatory landscape of cryptocurrencies.

Crypto accountants handle crypto transactions by using specialised software to track and record each transaction accurately. This ensures precise reporting and compliance with tax regulations.

Yes, crypto accountant services are necessary for businesses accepting cryptocurrency to ensure accurate financial reporting and tax compliance. They help manage the unique challenges associated with digital currencies.