Winter Economy Plan – Summary
September 28, 2020
Tech-savvy investors who’ve benefitted from the recent rises in the value of cryptocurrencies could be about to be landed with hefty, real-world tax bills.
Since the start of the year, Gosforth-based RMT Accountants and Business Advisors has seen a surge in client enquiries about the tax implications of the gains they’ve made from holding and trading the likes of Bitcoin, Ripple and Ethereum in the last financial year.
And Rachel Warriner, Head of Corporate Tax at RMT, is advising anyone who thinks they could be in the same boat to seek advice as soon as possible so that they are fully aware of the potential tax implications which could arise.
Cryptocurrencies are a digital currency operating independently of a central bank in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds.
They are designed to be secure and, in many cases, anonymous, and provide an outlet for personal wealth that is often considered beyond restriction and confiscation.
But even though they only ‘virtually’ exist on the internet, any gains that have been made are still likely to be subject to Capital Gains Tax, in the very same way that real world investments are.
And there could also be income tax liabilities if HMRC judged that individuals have been ‘trading’ in cryptocurrencies, rather than just dabbling. The profits and losses of a company entering into transactions involving cryptocurrencies would be rtaxable under normal corporation tax rules.
Rachel Warriner says: “Cryptocurrencies have been around for a while, but 2017 was the year that they really entered the mainstream and we’ve all read the stories about people making huge gains after very little initial outlay.
“We’ve been getting more and more calls from people who’ve invested in the likes of Bitcoin, and because of the web-based nature of these cryptocurrencies, they’ve often been from ‘early adopters’ with a background in technology.
“From HMRC’s point of view, there’s no difference between gains made on things like the sale of a property or shares, and the often dramatic gains that have been seen in recent months in the value of cryptocurrencies, and they will expect anyone with anything to report to have all their documentation in place.
“It’s not entirely clear at this point where the line is being drawn between people who’ve made a few personal transactions and those who’ve been making their living through trading, and it’s certain that HMRC will be examining individual cases very carefully in the 2018/19 tax year.
“As with any dealings that you have with the taxman, it’ll be essential for anyone in the spotlight to be open and transparent from the start – don’t try to hide anything, seek advice early and make sure you’re fully prepared for what might be asked of you.”