Topic: tax on bitcoin profits in United Kingdom? [Solved] (Read 18676 times)

As I understand it you can only really pay taxes as a sole trader where its your principal income and its considered a profitable enterprise.  They will not allow you to deduct costs and all sorts of normal business activity unless its considered a reasonable ongoing concern as a business.    This is to avoid people delibrately setting up loss making ventures in order to obtain equipment more cheaply then a consumer.

I read a case of someone who makes crafts on etsy website and really is very border line in their profits and only found out months later that the tax man considered them not a business but just a hobby.  This person was in effect unemployed for that period and not able to file costs or other deductions.   I would take the first year of trading as a maybe before continuing in any larger way.


On the plus side, gambling in UK is far more tax free then alot of countries.   You can gamble on the bitcoin price quite easily now via various betting firms.

The answers are here: https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies

not sure why anyone would ever think the bolded part of your quote. In a thread like this, best not to muddy waters with pure guesswork, as quite a bit of your post is way off.

clarification from accountant:

HMRC classify you as a trader *if* you are doing 'hundreds of trades daily/weekly'

if you aren't, then you are liable only for CGT (threshold £11,300, rate = 10% CGT for lower rate taxpayers, 20% CGT for higher rate taxpayers) for each disposal.

Don't take my accountant's word for it though, although this info should be helpful to us UK people - Always check with your own accountant.

Wow, this is seriously an interesting issue about bitcoin and even other countries share the same outcome with UK. But, is it true that it's regarded as private or exclusive money?

Actually this applies only to the VAT aspect. VAT is  charged TO consumers/customers and collected BY businesses/companies who are VAT registered, who then pass it on to HMRC. So no VAT is charged on transactions between currencies (including bitcoin and other cryptos), but VAT is still payable on transactions of normal goods and services (where normally applicable) that are transacted in bitcoin/crypto.

The issue of Capital Gains tax and Income tax is a totally separate issue to the VAT rules.

This is actually pretty cool to know. So there is not nearly as much right now in the UK on Bitcoin than their fiat.

Bitcoin is also unregulated where I live still, and at the moment I am now wondering if BTC is taxed or if it is considered an asset whereby we would need to pay tax on our gains from it. I think there is not doubt that in the next 5 years we are going to start to see governments really look into taxing crypto... finding ways to make it possible, because right now it really is impossible.

So I have a question too. I would like to hear your thoughts on the following scenario.
Someone with an LTD company in the UK provides services and accepts as a payment bitcoins.
The whole capital of this company is in bitcoin and not in FIAT. Then the company shares dividends to its shareholders (non-UK residents) and these dividends are in bitcoins too.
What will be the taxes and VAT for that company if no FIAT will be used?
Also, is this scenario possible?

Thanks in advance.

https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country_or_territory#Central_Europe

From Wikipedia:

The government of the United Kingdom has stated that the bitcoin is currently unregulated and is treated as a 'foreign currency' for most purposes, including VAT/GST.[2]:United Kingdom

Bitcoin is treated as 'private money'. When bitcoin is exchanged for sterling or for foreign currencies, such as euro or dollar, no VAT will be due on the value of the bitcoins themselves. However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrency. Profits and losses on cryptocurrencies are subject to capital gains tax.

There is no concrete answer given by HMRC, they simply say each individuals circumstances is examined on a case by case basis.

The list of questions from your accountant reflects this situation. HMRC use 'common sense' (!) to designate trader from speculator.


As I understand it:

For the everyday working person if speculating (ie gambling) on asset/stock moves in your part time you pay no income tax OR CGT on any profits. This would likely be the case so long as you make more money from your working than trading. However if speculating actually is your sole income they will likely decide you are a day-trader and so liable to IT on your trade profits.

Here are some more scenarios: so if you work and speculate twice a week and hold your positions for a few hours at a time they may say you pay no IT on that speculation nor CGT. But if you DON'T work but speculate twice a week holding positions for only a few hours they may decide you are a day-trader liable for IT. Similarly if you work and speculate twice a week but hold positions for weeks at a time they may decide you are investing and need to pay CGT on profits. If you work and trade 20 times per week holding positions for a few hours and make 50% of what you take home from work they may say you pay no IT or CGT on that profit. But if you make 200% of your job income you may be asked to pay IT as they would see you more as a day trader (based on your sucess rate).

Only HMRC can give you your particular answer once you have outlined your position to them and they have looked at the situation based around these general rules.


NB - I am not a tax advisor and have deduced this from HMRC website and may be wrong so seek professional advice for further clarification.

As anyone in the UK knows, that gov.uk site is about as useful as a kick in the nuts

I did hear back from the accountant, and does seem as I need to be up a level or several before being classed as trading and have to worry about income tax, though the CGT part is a pain in the ass... apparently they want a record of every btc transaction, a transaction being: buy btc, sell that btc

No scope for exchanging btc to other crypto, or usdt, or leaving various crypto in exchanges while trading; so as usual, a gov't tax department is far behind the curve of what is actually involved.

poke around on that .gov.uk site posted many times upthread
my guess: you have nothing to worry about

little bump for last post in case anyone can help

Had a meeting with my accountant last week and I brought up bitcoins again. He had previously told me if I was buying to hold it's classed as speculating (ie gambling) and no income tax to pay, just CGT if I went over the threshold.

To clarify, I asked last week this question:

"so in theory, I can buy £100 worth of btc week one, sell for £200 week two, and repeat this process throughout the year, if the prices dipped/rose accordingly, and I gambled on that... and at the end of the year my profit of £2600 (£100 profit each 2 weeks) would be subject only to CGT (and ofc falls below the yearly threshold)"

^ Again, a theoretical question, so I could get confirmation that the ONLY thing I need to worry about is CGT (as I'm not a trader arbing on localbitcoins etc, simply a speculator 'gambling' on polo/bittrex/etc). This time I got as a reply:

---------
"We have reviewed various documents and the tax treatment is a very grey area. It appears profit on trading in Bitcoins may be taxable depending on the frequency and profit being generated.

To enable us to look at it in more detail and hopefully ensure we give you the correct advice could you please let me have the following information:

How often to you buy Bitcoins as an investment.

How much do you tend to invest each time.

How much profit have you made.

It appears if you are investing on a regular basis it may be considered to be trading and be subject to Income Tax or Capital Gain Tax."
---------

This has put the wind up me slightly (I have around £30k in various crypto at any one time), and I would love if anyone can point me directly to some more concrete 'evidence' so to speak, regarding the difference between being a trader liable for income tax on earnings versus a speculator trying to cash in on dips/lows. My thoughts are trader (in anything) = buy 'stock' from source A, sell said stock at place(s) B(C,D,E,etc)

I'll be stunned if what I do is classed as trading, but as fellow UK people will know, the taxman will grab any chance to anally probe all and sundry if it means they can make a pound from it. I also get that accountants are a bit like seo experts... ask 10 and get 10 different answers, and as for the HMRC it's pot luck whether you get a competent civil servant or a f**kwit giving you totally wrong info, so a bit of a long shot but if anyone KNOWS the answers to what constitutes a trader liable for income tax (CGT is pretty simple) I'd be forever grateful for some input.

Thanks in advance :-)

Same thing with my country. People of my nation still don't know what bitcoin is or may be this is the case where they are not able to accept it for some reasons. So I believe government has also not taken any initiative with regulating bitcoin and all related activities. Nah be this is profitable for now but soon when people will start recognising it government will start thinking about its laws.

Great stuff
more material
https://www.gov.uk/set-up-sole-trader
https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return

wish you the best of British luck

whereabouts are you looking to move to?

Thank you very much. I did not see that I could contact someone at the website.

I just called these one:
https://www.gov.uk/government/organisations/hm-revenue-customs/contact/capital-gains-tax-enquiries-for-individuals-employees-and-self-employed

And they confirmed that capital gains tax is to pay, even if I'm Non-Dom, cause it is not "foreign income", even if it is traded on exchanges outside of UK, cause instead they are looking where the person who is trading has his residance, which would be UK -> taxed.
But no company or any commercial thing needed, at least they did not tell me about it.

Question solved.

sole trader is commercial. the rule will be somewhere on that site
British Embassy in capital city or Consulate in smaller cities
your visa status may change due to brexit negotiations. ask the consul about this
i'd guess you have to consider yourself commercial and declare yourself to HMRC once your annual turnover exceeds a certain amt (£80k? approx)
again, that will be on the .gov.uk site

Thanks, but as far as I can see there is no informatin about "company" or not ?
By company I mean everything that is commercial. I just wasn't sure if commercial is the right word to use, since english is not my native language.
I guess a sole trader is also commercial?

Where to contact someone who can clearly tell me if my trading is commercial or not?

The plan:
If I move to UK, I have the Non-Dom status (same for Ireland and Malta)
And as such I don't have to pay taxes on income from foreign countries. Since most exchanges are not based in UK, the profits would be tax free.
But there are exceptions. If I trade commercial, the profit is not tax free. Daytrading and private active asset managent is defined commercial in this case.
So the question now is, if bitcointrading is also commercial, when just trading on exchanges.

Ah ok.
lots to read here:
https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies
https://www.gov.uk/government/organisations/hm-revenue-customs/services-information
https://www.gov.uk/capital-gains-tax-businesses 'You pay Capital Gains Tax if you’re a self-employed sole trader or in a business partnership. Other organisations like limited companies pay Corporation Tax on profits from selling their assets.' seems that part is up to you
pretty sure you can request an interview with an HMRC agent to thrash things out
to reiterate, in UK you don't have to start a company, just to declare yourself a sole trader

Does it mean that you are not supposed to pay taxes if that is not regulated by law in your country,i thought you should file those incomes while filing for your taxes annually,i am yet to file my taxes for the bitcoin returns because i am yet to sell my major share of coins and when i do that i will be thinking about that because i do not want the government to come knocking my doors.

Thank you very much.
I can imagine that when doing localbitcoin trades or any trades that are not on an exchange (like bitstamp, bitfinex, kraken and so on), goverment can argue that you need money transmitter licencse+company (that's why localbitcoins is blocked in germany).

But do you have sources if a company is also needed when trading high volume at exchanges mentioned above? No localbitcoins, no private trades and only trading with own money and not for third parties. If this would need a company too, nearly every single bitcointrader would be affected.
Where could I get information like this?
The problem is that I need a 100% legal answer to this question... and even most tax accountants are not able to answer this, since they don't know bitcoin.


In most countries you have to pay taxes on profits you make through bitcoin, even if it is not regulated. The kind of tax differs and there are even countries without tax on profits.

As I know Bitcoin profit is not admited in any country yet, so there is no taxes from this kind of earnings. I am from Russia and I heard here in the project national crypto currency. I think when this project will be realise all citizens will have to pay that kind of tax from their crypto profit.

if your turnover is over x/year, you'd have to form a company or sole tradership and tell the HMRC about that
as to whether you need some sort of money transmitter license, probably nobody knows, even the relevant regulatory body
(in USA they're always prosecuting traders for no money transmitter license)
ask here https://bitcointalk.org/index.php?board=8.0
see if you can't get in touch with head of Localbitcoins UK for advice
I'm sure there are uk lawyers who know sth re crypto
write to the Minister for his opinion - a 'note from Stalin' keeps the police away


if you go ahead in the open, with permissions etc, you must still keep your bank out of the picture and never mention the word 'bitcoin'. someone will just get spooked and freeze your account to be on the safe side or vindictively

I think OP is talking about exchanging bitcoins in real money.
Bitcoin itself is not taxable, but when you exchange it to money and withdraw it to your bank account, i am sure you have to pay tax.
 
If you buy a house i am sure they will ask you to prove where money came from. You can't really say to them "go fck yourself, bitcoin is decentralized and you cant' control it"  

Not sure about the United Kingdom as they still follow the European Union rules when it comes to finance, but in most countries, bitcoin is not taxed as it is not recognized as a currency in the first place.

But, the moment you convert your bitcoin to any accepted currency, you need to pay tax on it as it is considered to be an income in the recognized currency.

thanks.

A tax accountant told me that for bitcoin trading in UK I most likey need a company, since daytrading and private asset management would also be considered being commercial (is commercial the right word?)
But unfortunately most tax accountants don't know much about bitcoin and are even telling wrong stuff. That's why I would like to hear general opinion here.
Can't imagine that regular bitcointraders in UK all have a company

@javalemcgee:
Sry but I don't want to go to jail because of this...

WTF is that? This is bitcoin guys remember, decentralized and cannot be control by any group or government. Not taxable!

If you still pay tax for this, you're stupid. Clearly.

You can daytrade in the stock market without needing a company so I don't think you would need one for bitcoin. Sorry I don't have that much knowledge personally.

thanks for clarifying.

So the only relevant part is this: ?

Okay, capital gains.

What about forcing you to be a company? If daytrading and private active asset management needs a company, I would expect that also bitcoin-daytrading would need a company. Or is it not true?

It doesn't say that you have to pay VAT on your bitcoin, it says if you buy and sell goods and services using bitcoin you have to pay VAT.

Capital gains tax is the only relevant one.

OP read the article.

thank you.
VAT, really??
That would mean that there is not a single bitcointrader in whole UK, since everyone would make losses just because of VAT?
(buying a btc for 1000€ and selling it for 1010€, would still be a loss when you have to pay VAT on buying and on selling)

edit:
Just read one sentence in this article:
Since EU said there is no VAT on bitcoin, I think UK also says there is no VAT now, right? The article is quite old, 3 March 2014 , while the VAT decision was at 22 November 2015

You can read about it on the government's website.

In the UK, Bitcoin is basically treated as a commodity which is subject to VAT, and to capital gains tax when converted to fiat.

HMRC are pretty incompetent though, and they couldn't catch a cold.  If you withdraw a large amount to a bank you might have to declare it.

In my country bitcoin is not in any way regulated by law. It is still not recognized so no taxes to pay, but once you change the currency further actions fall under the tax base.

Hi

I would like to know how profits from regular bitcoin trading are taxed in UK.
Just regular trading on bitcoin exchanges.
Hold the coins not longer then 1 year, in case this does matter.

In germany selling btc is a "private sell", so profit is added to your income and you pay income tax, if you holded the btc not longer than one year.
If holded longer than one year, it is tax free.

In alot of other countries it is very similar, except that holding more than one year will only make tax cheaper, not tax free.

How is it in UK ?
And more important:
Is every regular bitcointrader commercial, so has to make a company?! Cause I was told in UK for "Daytrading" and also "active asset management" you need a company.

edit:
sry if this is wrong section. The bitcoin/legal section was hidden for some reason, so I thought Economics does more fit than altcoin and trading discussion

edit2:
SOLVED:
https://bitcointalksearch.org/topic/m.19571753