How to calculate your crypto taxes for your self-assessement tax return
A step-by-step guide to calculating crypto gains and submitting a self-assessment tax return
Fri Jan 03 2020
There is a lot of uncertainty within the UK cryptocurrency community as to how individuals should account for their cryptocurrency gains/losses for tax purposes, and then how to file those tax returns when it comes to tax season (the deadline for the 2018/2019 tax year is approaching fast – January 31st 2020!).
We decided to write this blog to provide some clarity on the issue and make the unmanageable migraine of cryptocurrency taxation into more of a bearable annoyance (let’s face it – tax is never going to be fun!)
Recap can be used to gather all of your cryptocurrency portfolio and historic transactions in one, highly secure place. From here, users can gain an overview of their portfolio’s performance, look over historic transactions and, most importantly, generate a comprehensive capital gains tax report showing the total gain (or loss) made from your cryptocurrency transactions in the chosen tax year.
taxation is so complex in the UK is the way cryptocurrencies are treated for tax purposes. Cryptocurrencies are treated as ‘Cryptoassets’ by HMRC, meaning that they are treated similarly to shares for tax purposes.
Therefore, for every transaction an individual has ever made using cryptocurrencies, they need to determine the exact amount they paid for that amount of that specific cryptoasset. Due to the way disposals work for tax purposes, this could mean an acquisition made several years ago is the correct acquisition to match yesterday’s disposal against.
As you can imagine, this can be a nightmare for even the most infrequent of crypto traders, because it requires individuals to account for every single transaction they have ever made and calculate the value of that transaction in GBP at the time of the trade. Often, smaller cryptocurrencies don’t have a direct pairing with GBP or even USD, meaning the calculation must sometimes go as follows: cryptocurrency > BTC > USD > GBP in order to establish the cost of acquiring that specific amount of that cryptoasset on that date.
Have I bored you enough with the intricacies of UK Cryptoasset taxation already?
I thought I might have (Now spare a thought for the poor soul writing this blog post!). Luckily for you, I won’t cover much more on this now, but if you would like to find out more then head on over to our comprehensive UK cryptocurrency tax guide here (or our slightly more concise version here) which have both been created in association with qualified tax professionals in the UK.
This is where Recap comes in. There is no longer a need to do all of these calculations manually or with the help of an accountant. Recap allows users to import data from their exchanges via read-only APIs, or upload CSV files of their transaction history (these can usually be downloaded directly from your exchange accounts). All of this is done with end-to-end encryption (similar to WhatsApp or Telegram), meaning that the only person that can ever see your data is you! Even us at Recap cannot see your cryptocurrency transaction data, meaning neither can hackers or malicious actors.
Once a user has all of the data from their entire cryptocurrency ‘journey’ imported into Recap (It is important to have the entirety of your history of transactions present for acquisition and disposal purposes) they can generate a tax report in seconds. Recap’s tax engine was specifically designed to comply with the UK tax regulations, so it incorporates all of the intricacies involved in UK cryptoasset taxation for individuals (such as bed and breakfasting).
Below is an example of the report produced by Recap and the page displaying the final figure which can be used in an individual’s self-assessment tax return, which we will move onto next!
As you can see above, this individual’s Capital Gains as a result of their cryptocurrency activities in the 2017/18 tax year amount to a net gain of £78,019.84 – This figure is net of everything HMRC allows to be deducted from disposal proceeds, such as the cost of acquisition and associated transaction fees.
Now that we have this net gain figure the rest of the process is relatively simple. For a net loss, see here for how you could use a net loss to offset future capital gains tax.
The Next Step – Submitting your Self-Assessment tax return
Next up, is submitting your self-assessment tax return. This can be done online or in a paper form, but you must register as a self-assessment taxpayer before submitting your return and paying any tax due. The deadline for submitting a paper tax return for 2018/19 has passed, therefore you must file this tax return online before January 31st 2020. It takes HMRC at least a few weeks to register you, so it is imperative this is done ASAP. Even if you have already registered for self-assessment and have your UTR tax reference number, you also need to register for online filing by setting up a government gateway account via the HMRC website and this can take another couple of weeks. To meet the January 31st 2020 deadline, you should act now to have the best chance of avoiding late filing penalties. More information on the deadlines relating to this can be found here.
For the purpose of this blog post, we will focus on the online self-assessment tax deadline and payment deadline, which is January 31st 2020 for the 2018/2019 tax year. Below is an example Recap report for the 2017/2018 tax year, and a screenshot of the online self-assessment tax return capital gains section.Important note – We advise sending any Recap reports to your accountant before completing the self-assessment tax return, as there are various intricacies involved around capital gains taxation that change on an individual basis. If you would like to be introduced to one of our partnered UK Crypto tax specialists, please reach out to us via the in-app support.
On the diagram above, we have underlined the corresponding figures from the Recap report and the boxes where these figures should go on the online self-assessment tax form.
The reason these boxes say (Optional) is that the form is a generic capital gains tax return form – it is not crypto specific. Therefore, when someone has only a few capital gains disposals (say, you sold a property or a painting), these can easily be filled in and calculated on the capital gains computation worksheet. However, using the worksheet for crypto transactions is near impossible due to the complexity and number of disposals and calculations generally involved, hence the birth of Recap!
The “Are you making any claims or elections” section is where your previous (or current) capital losses can come in handy. If you have realised a taxable loss on your crypto investments for a given tax year and declare this to HMRC using the above form, this can usually be used to offset future capital gains that you may have, therefore saving you potentially huge amounts of tax in the future. Therefore, if you have a taxable loss in the current year but are expecting crypto prices to rise in the next few years, Recap strongly advises that you declare your taxable loss for the current year so that you can use this to offset any taxable gains in the future.
The deadline for amending your 2017/18 tax return is also January 31st 2020, therefore this is your chance to ‘bank’ a capital loss made in that year by filing a tax return to claim this loss. The loss can then be used to reduce capital gains in 2018/19 or later years.
You will also need to include the calculations for any other capital gains or losses on other capital assets disposed of in the chosen tax year on your self-assessment tax return, such as disposals of art investments or stocks. Only crypto disposals are included in the Recap tax report.
Below is an example of the paper self-assessment tax form section relating to cryptocurrency capital gains or losses.
And that’s about it! Not so much of a headache after all eh? We haven’t covered every single intricacy of cryptocurrency taxation in this blog post, however we do have a comprehensive guide to UK cryptocurrency taxation on our website.
And remember, we always advise working alongside an accountant when submitting your cryptocurrency related self-assessment tax return. They can provide a lot of value and often save you more money than they cost! Best of luck with your crypto taxes – if you have any questions then feel free to reach out through the in-app support or via our telegram group.