Crypto Mining Tax: The Ultimate UK Guide

Crypto mining is taxed in the UK at the income levels, with investors and miners having to keep track of that income and report it.

Crypto, in general, is taxed in the UK at an income and capital gains level, with several reporting requirements set by the HMRC, including earning income from staking, mining, etc.

In this guide, we’ll cover all the details about crypto mining, how crypto mining rewards are taxed in the UK, how to report crypto mining to the HMRC, and much more!

What is crypto mining?

Crypto mining is the process of creating new units of a cryptocurrency that follows a Proof-of-Work consensus (e.g., Bitcoin) by solving a complex computation. The successful completion of those calculations will lead to the successful creation of new blocks and units of a cryptocurrency. 

Proof of Work – PoW

Proof-of-Work (PoW) is a consensus for creating new units of a cryptocurrency based on inputting resources (e.g., work) and getting that work verified on the network to produce new coins. The most popular example of a PoW coin is Bitcoin (BTC).

What are Mining Rewards?

Miners employ a lot of technological resources and money to be able to produce new coins of a cryptocurrency, and as  compensation, they receive units of that cryptocurrency – mining rewards.

How is crypto mining taxed in the UK?

Crypto mining can be taxed at an income level and capital gains depending on the moment of the transactions. Let’s look at it in detail. 

Income tax

As the basic rule, crypto mining is taxed at an income level in the UK, with miners having to determine the Fair Market Value (in GBP) at the moment they receive those rewards. 

This will be added to their total income and taxed according to the miner’s income tax level in the UK. 

Income tax rates for miners can range from 0% to 45%, depending on the total income they have while if their total income falls below £12,570, they wouldn’t have to pay income taxes over mining rewards. It may be possible to claim the miscellaneous income allowance, which could exempt the first £1,000 of mining income.

Capital gains tax

Miners can keep their crypto mining rewards  and later sell them, meaning they’ll get taxed at a capital gains level at that time. If the mining rewards appreciate in value during your holding period, you’ll have a gain when you sell them.

That gain will be taxed in the UK at a capital gains level, with rates going from 10% to 20%. For 2024/25, there’s a capital gains tax-free allowance of £3,000 for individuals.

How to calculate mining taxes?

Tracking all the income you receive from crypto mining is not an easy task since you need to recognise the Fair Market Value at the time you receive those new coins.

If you receive several batches of coins throughout time, the underlying price of the cryptocurrency you’re receiving is shifting, but you still have to recognise the FMV of that amount of new coins at that time.

Using crypto tax software like CoinTracking is the easiest way to do this, since it automatically syncs the amount of coins with the right price, calculating your FMV.

Examples

Let’s imagine that you mine Bitcoin (BTC). In April 2021, you received 0.1 BTC from your mining activities. The price of 1 BTC at that time was £56.1K. You need to recognise £5.61K (0.1 BTC * £56.1K).

Crypto Mining: Hobby or Business?

Crypto mining activity can fall under a hobby or as a professional activity (business) depending on several criteria that lead authorities (e.g., HMRC, courts) in the UK to certify the activity on each individual’s case. 

Crypto Mining as a Trade

Crypto mining could also be considered trade based on the nature of the activity involved (e.g., frequency, magnitude of earning, etc). In that case, the new coins abstained though crypto mining will be taxed under regular business taxes instead of personal taxes. Moreover, capital allowances may be available for the purchase of any equipment for mining.

Crypto Mining as an individual (hobby mining)

If UK taxpayers have sporadic earnings from crypto mining, they’ll likely fall under the hobby category, being taxed according to the Fair Market Value (in GBP) of the rewards they received at that moment. This income from crypto mining activities will be taxed under “miscellaneous income” in their tax return and income-related tax deductions apply.

If they later sell the crypto mining rewards, they’ll also face capital gains taxes, with reporting requirements in other forms. 

How to report crypto mining to the HMRC

Here’s how to report crypto mining to the HMRC:

Tax Forms for Crypto Mining in the UK

In the UK, when you receive income from crypto activities like mining or staking, investors need to use supplementary pages like form SA100. Usually, in the UK, miners need to submit their crypto taxes by the January 31 tax deadline.

Miners and investors in crypto also need to keep detailed records of their transactions as this can be needed to prove gain/come to the tax authority. 

Strategies to Minimize Crypto Mining Taxes

Here are the strategies to minimize crypto mining taxes:

Tax deductions for crypto miners

Crypto miners can reduce their mining taxes by deducting their recurring costs like electricity from their total income and lower the amount of income that will be taxed. This only applies to income taxes and not capital gains taxes.

Annual Tax Exemption

In the UK, there’s a personal income tax free allowance of up to £12,570 per year, meaning miners wouldn’t have to pay taxes if they don’t surpass that income level.

Compliance for Crypto Miners in the UK

Tracking crypto mining rewards is difficult for hobbyists and even professionals, as receiving different batches of mining rewards increases the difficulty of tracking the right Fair Market Value.

Miners have the responsibility to keep detailed records of all their transactions, including crypto trading and mining, besides having key information about those (e.f.d, dates, sales process, etc).

The easiest way to keep track of different mining rewards (e.g., different coins, rewards received at different times) is to automate that tracking with the use of crypto ta software. 

Taxation of Crypto Mining in Other Countries

Australia

Australia taxes crypto mining rewards according to the nature of the activity. Hobbyist miners only get taxed when they sell their crypto mining rewards while those doing it as a business activity will be taxed at an income level when they receive the rewards.

Discover how Australia taxes crypto.

US

Crypto mining is taxed in the US at an income level, with investors having to determine the Fair Market Value (in USD) of the rewards when they receive them and report that income in their Income Tax Return (Form 1040). Discover how crypto is taxed in the US.

Germany

Crypto mining rewards are taxed in Germany at an income level based on the Fair Market Value (in EUR) of the coins you received. In case you sell your rewards before holding them for 12 months, you’d also get taxed at a short-term capital gains tax rate. Read more about crypto taxes in Germany. 

Conclusion about the Crypto Mining Tax in the UK

Crypto mining is taxed in the UK, with investors dealing with income and capital gains taxes while having to deal with several reporting requirements. 

However, tracking income from mining and determining gains from several batches of rewards is hard for miners and investors. 

On top of the tracking challenge, investors have to submit specific forms to report their crypto mining rewards. Fortunately, with CoinTracking, miners can track all of the mining rewards they receive and generate the tax reports they need to submit crypto mining taxes.