Calculating Crypto Gains and Losses
One of the most crucial aspects of crypto taxation is calculating gains and losses. This section will guide you through the process and provide clarity on the methods used.
The basic formula to calculate gains or losses from a crypto transaction is:
Gain/Loss = Selling Price – Acquisition Cost
- Selling Price: The amount you receive when you sell your cryptocurrency.
- Acquisition Cost: The amount you initially paid to acquire the cryptocurrency, including any associated fees.
You bought 1 Bitcoin for £5,000 in January and sold it in June for £8,000.
Gain = £8,000 (Selling Price) – £5,000 (Acquisition Cost) = £3,000
You bought 1 Bitcoin for £9,000 in July and sold it in December for £7,000.
Loss = £7,000 (Selling Price) – £9,000 (Acquisition Cost) = -£2,000
In Scenario A, you have a gain of £3,000, while in Scenario B, you have a loss of £2,000.
Reporting Cryptocurrencies on Tax Returns
In the UK, HMRC has provided guidelines on how individuals should report their crypto transactions on tax returns. Any cryptocurrency investor who has earned over £1,000 in crypto income or realized more than £12,300 (£6,000 starting from April 2023) in crypto capital gains is required to file a Self Assessment Tax Return with HMRC.
How to Report Crypto Taxes to HMRC
- Self Assessment Tax Return: If you’ve made gains or incurred losses from your crypto transactions, you’ll need to report them using the Self Assessment tax return. We recommend doing this online through the Government Gateway service.
- Capital gains and losses: Include details of your crypto transactions using the supplementary form SA108.
- Crypto income: If you’ve received income from crypto, such as from mining or staking, report it in the supplementary pages using form SA100.
- Record Keeping: Ensure you maintain detailed records of all your crypto transactions. This includes dates, amounts, the type of cryptocurrency, the purpose of the transaction and wallet addresses. HMRC can request these records, so it’s essential to keep them for at least five years after the submission date of the tax return.
When Do You Need to Report Your Crypto Taxes?
- Annual Reporting: You should report your crypto transactions annually, in line with the UK’s tax year, which runs from 6th April to 5th April the following year. Regarding online tax returns, the deadline is the 31st of January following the conclusion of the tax year. Therefore, if the tax year concludes on the 5th of April 2023, online tax returns should be submitted by the 31st of January 2024.
- Thresholds: Even if your gains are below the tax-free allowance, you still need to report them if you sold crypto assets worth more than four times the allowance (currently £24,000, but this may change).
- Losses: If you’ve incurred losses, it’s beneficial to report them as they can be offset against other gains, potentially reducing your tax liability.