Cryptocurrency received for services (earnings)
Currency received in exchange for services is taxable as income. The method of taxation; however, and the availability of relief for any expenses differs depending on whether you’re engaged in employment, or self-employment.
In the vast majority of cases, cryptocurrency will be considered a readily convertible asset, as markets exist for the cryptocurrency to be sold. Payment in readily convertible assets is taxable when paid to an employee, at the value on that date, and the employer should deduct and pay income tax and National Insurance Contributions (NIC) through the PAYE system.
Employed individuals should, therefore, have had their tax obligations met by their employer, even if they were paid in cryptocurrency. Any employers that have not correctly accounted for their employee’s tax obligations, through the PAYE system, may be guilty of an offence, and should get in touch to consider whether a disclosure needs to be made, and the content of that disclosure.
Self-employed individuals, however, will be responsible for declaring and paying their own tax and NIC, and this is done through the Self-Assessment regime. In most cases, the value of the cryptocurrency, for the purpose of tax and NIC, will be the market value when it was received.
To file a tax return, individuals require a Unique Tax Reference number, which can be applied for online. Tax returns are then required to be filed online by 31 January, following the end of the tax year.
For the self-employed, costs incurred wholly and exclusively for the purpose of their trade can be deducted when calculating their taxable income. Employed individuals cannot deduct such expenses (subject to certain exceptions).
It’s possible to be considered self-employed by virtue of your cryptocurrency trading activity, but HMRC has confirmed that individuals will only be treated as trading in cryptocurrency in very limited circumstances. The majority of individuals will, therefore, only pay income tax on cryptocurrency if they have received the tokens in exchange for work carried out.