Blockpit’s 2023 guide for crypto tax forms provides a streamlined roadmap for reporting cryptocurrency transactions to HMRC. We highlight the pivotal steps and key deadlines to keep in mind. Additionally, our guide pinpoints precisely where in the tax forms you need to declare your crypto activities. To round things up, we offer a glimpse into the horizon, briefing you on anticipated changes in crypto reporting for the tax years 2024/2025. Dive in to ensure you’re well-prepared and compliant for both the present and the future.
This guide is part of our series: UK Crypto Tax
How to calculate which taxes you owe
Identifying your tax obligations
Primarily, if you’re buying and selling crypto, you might be liable for Capital Gains Tax (CGT) on any profits. If you receive cryptocurrency from mining, staking, or as a form of payment, it’s considered taxable income, which may subject you to Income Tax.
Additionally, if you earn interest on your crypto holdings or through DeFi platforms, this interest might also be taxable. Furthermore, should you receive tokens from airdrops or forks, their tax implications vary based on circumstances.
Remember, certain tax-free allowances could be applicable to you. For detailed insights, refer to our guide: Crypto Tax-Free Allowances
Always ensure you understand which obligations apply to your specific activities.
Choosing the right cost basis method
Cost basis for cryptocurrencies refers to the original value of a crypto asset for tax purposes. It’s used to determine capital gains or losses upon selling or transferring the asset, by comparing the sale price to the initial purchase price. The cost basis, in essence, represents the total investment made in the asset.
In the UK, there are three primary methods to calculate the cost basis:
Section 104 Holding (Pooling Method)
This approach pools all acquisitions of a specific crypto, calculating an average cost per unit. When you dispose of some tokens, you deduct from this average.
Tokens disposed of are first matched with tokens acquired on the same day of the disposal.
Bed & Breakfasting (30-Day Rule)
Tokens disposed of are matched with tokens bought within the next 30 days of the disposal. This rule was established to prevent investors from selling and quickly rebuying assets solely for tax benefits.
For an in-depth analysis and proper examples of these methods, consult Blockpit’s detailed article: Crypto Cost Basis Methods.
Calculating your crypto taxes
Calculating crypto taxes can be approached in two primary ways: the manual spreadsheet method or leveraging dedicated crypto tax software like Blockpit.
To meet HMRC’s meticulous record-keeping standards, you’re expected to diligently record details, from equivalent GBP values and transaction dates to cryptocurrency type, transaction nature, unit numbers, cumulative totals, and supportive bank or wallet data for potential audits.
The manual route for tracking each transaction is daunting, to say the least.
Blockpit streamlines this process. Simply integrate your crypto transaction history into Blockpit using our API or CSV functionalities, address any discrepancies, and swiftly obtain accurate calculations for each relevant tax category.
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How to report cryptocurrencies to the HMRC
For reporting cryptocurrency transactions to the HMRC, private users in the UK can primarily choose the online tax return system, offering several advantages.
Not only is the deadline for online submissions extended to January 31st, three months later than the paper return cut-off on October 31st, but online returns also allow for easier corrections if mistakes are made.
Plus, HMRC receives it instantly.
However, for those who prefer traditional methods, a paper tax return can be sent viapost to the HMRC.
Now, depending on one’s employment status, there are certain nuances to remember.
For self-employed individuals, it’s imperative to incorporate their crypto gains or losses as a pivotal part of their self-assessment process. This means that any income or expenses related to their crypto endeavors should be transparently declared.
Moreover, certain self-employed individuals might need to be aware of potential VAT implications tied to their cryptocurrency transactions.On the other hand, for those not engaged in self-employment, the process is more straightforward.
Their primary responsibility lies in reporting capital gains or losses that arise from the sale or exchange of cryptocurrency.
In some instances, other crypto earnings like rewards or airdrops might be viewed as supplementary income, and it’s essential to report these as well.
Filing an online tax return
Follow these steps and pay attention to the deadlines:
- You are not engaged in self-employment and unfamiliar with the online self-assessment tax process: Start by using form SA1 to register for Self Assessment until 5th of October 2023.
Self-employed individuals should first access their business tax account and incorporate a ‘self-assessment’ entry. If you’ve not yet created an online business tax account, it’s essential to do so before advancing in the process.
- Complete the Self Assessment Tax Return (SA100). Find more details below.
- For crypto capital gains, mark ‘yes’ in box 7 in SA100 and complete the additional Self Assessment: Capital Gains Summary (SA108). Find more details below.
Ensure you submit your Self Assessment Tax Return to the HMRC online by the 31st of January 2024. That’s it!
Filing a paper tax return
For individuals not engaged in self-employment opting for a postal submission, you must first fill out a physical SA1 form.
Once submitted, you can expect an activation code for your new account to arrive by post within 15 working days (or 21 if overseas).
Upon receiving the code, you’ll need to sign in to activate your Self Assessment.Conversely, self-employed individuals will first have to register for Self Assessment and Class 2 National Insurance.
This involves filling out a form on-screen, printing it, and then dispatching it to HMRC.
Before the due date, you’ll be sent a reminder letter prompting you to complete your Self Assessment tax return.Remember, the deadline for submitting paper tax returns is October 31st, 2023.
How to report crypto on tax forms
To accurately convey your crypto-related activities to HMRC, two primary forms must be completed: the HMRC Self-Assessment Tax Return SA100 form (including income derived from crypto activities) and the HMRC Self-Assessment Capital Gains Summary SA108 (detailing your crypto capital gains and/or losses). Let’s delve deeper into these.
Let’s look at an example to make this clear.
Say you’re a freelancer with an annual income of £30,000, and you’ve been paid £5,000 worth of Bitcoin for a project. Your total income for the year is now £35,000, which still falls within the basic rate band. Therefore, you’d pay 20% tax on your Bitcoin earnings, which equals £1,000.
Note: The guidelines provided below focus specifically on your crypto activity and investments. If you have other income, capital gains, or losses to report, ensure they are included in the same form.
Form SA100 – Self Assessment Tax Return
The SA100 form, known as the HMRC Self-Assessment Tax Return, serves as the primary tax documentation for individuals. It encompasses areas like income, capital gains, student loan repayments, interest, and pensions.
For those declaring capital gains or losses, it’s essential to mark box 7 in the SA100. Additionally, you’ll need to accompany it with the SA108 form, the Self-Assessment: Capital Gains Summary, which we’ll delve into below.
On page 3 you find “Other UK income not included on supplementary pages”:
Box 17: Put in any income from crypto activity
Box 18: Expenses related to your crypto activity can be stated here
Box 21: Describe how you earned the income. For example, if you made money from mining crypto, you can write “Income from crypto mining”. It’s helpful to be as detailed as possible in this section.
Form SA108 – Capital Gains Tax Summary
Directly on the firstpage, under the section titled “other property, assets and gains,” you’ll encounter boxes 14-22. Ensure you input the precise values pertaining to your financial activities for the relevant tax year in these boxes.
Once you’ve filled out the initial section, proceed to ‘Losses and adjustments’ found on page 3. Should you have capital losses from prior years, income losses applied, or capital losses you’re planning to carry forward, make sure to fill boxes 45-48.
Crypto Reporting Updates for Tax Years 2024/25
Starting from the tax year 2024-25, UK’s self-assessment tax return forms will introduce a distinct section for individuals and trusts who have traded crypto assets. This change, aiming to increase tax compliance, will differentiate crypto from the current “other” assets category.
This move is anticipated to boost the exchequer’s revenue by around £30mn between 2025-28, aligning with a significant reduction in the capital gains tax-free allowance.
The government’s efforts to position the UK as a crypto stronghold are evident, with initiatives aimed at enhancing transparency in crypto transactions. Notably, a mere third of crypto holders in the UK claim a strong grasp on capital gains obligations. The new tax reforms could lead to more investors declaring taxable returns, especially with the cuts to the capital gains tax-free allowance. It’s crucial for the HMRC to adapt tax rules to the ever-evolving crypto landscape.
Streamline your crypto tax return with Blockpit
Blockpit creates the most comprehensive crypto tax reports in PDF format. The report provides information about all your balances and transactions and can be used as proof of origin with banks or tax advisors. It contains all relevant transactions of your account in the selected tax year and shows details such as timestamp, amount, asset, costs and fees of the individual transactions.
Using Blockpit couldn’t be easier:
1. Import your transactions
Blockpit offers direct integrations for crypto exchanges, wallets and DeFi protocols. Automatically import your transactions via API integration, wallet address synchronization, or by manually uploading an Excel file.
2. Validate & Optimize
Blockpit offers smart insights and suggestions to optimize your tax report, fix issues, add missing values and to validate your transactions.
3. Generate your tax report
Generate your compliant tax report with the click of a button. Our tax engine calculates your tax report on the basis of the UK tax framework.