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  • Tax planning and structuring for cryptocurrency activities

    As cryptocurrencies become ever more popular many individuals have large investments held personally, which would trigger a significant gain if sold.

    Experience

    Having a tax specialist who is experienced with the issues relating to cryptocurrency can offer you peace of mind. We have been advising clients on their cryptocurrency tax affairs since 2017. Indeed, we were one of the first (if not the first) tax advisory firms to proactively seek to properly understand the crypto marketplace, and the tax treatment of crypto transactions. Since then, we have amassed significant experience in this area, working with clients with crypto portfolios of a few hundreds of pounds to hundreds of thousands of pounds.

    Expertise

    Since we advised our first client in 2017, we have continued to lead the way in this rapidly evolving area, ensuring we keep up to date with the latest developments, trends and even terminology! A number of our team are themselves active investors in cryptocurrency, and, as such we have first-hand experience of blockchain. We are even happy to take payment for our services in cryptocurrency.

    Helping you to focus on what’s important

    Our team can help you ensure that your cryptoassets are structured properly. We can assist in calculating your taxable gains or losses on your cryptocurrency disposals, and deal with your HMRC filing obligations thus ensuring you are fully compliant. We can also assist those who are in dispute with HMRC or who are non-UK domiciled who may have specific tax needs relating to this area.

    As with many investment and trading activities it can pay dividends to consider the tax treatment of proposed transactions before you get started, as this can usually save time and money later on.  

    Indeed, with HMRC also becoming more familiar with tax issues arising from blockchain, it would be wise to ensure things are on the right footing, especially if you intend to regularly invest in crypto or to invest significant sums.  

    Our fees for an introductory report such as this typically start from £1,500 plus VAT, but individual fee quotes are always given.  

    Crypto tax planning

    Investors are becoming more active; trading tokens, being paid in tokens or even becoming full time crypto ‘investors’. These changes in activities, together with proposed tax rises on the horizon, has made tax planning for the future even more important.

    With the higher rates of income tax of up to 45%, for those individuals whose activities exhibit significant characteristics of trading, it may be beneficial to consider the use of a limited company to undertake crypto activities. This way all profits or gains are charged at corporation tax rates (currently 19%) if the UK company is resident for tax purposes in the UK. 

    Alternatively, in some circumstances it may be beneficial to consider a corporate structure outside of the UK. This can be a complex area and there are many legal, commercial and tax considerations.

    ETC Tax can assist with the following:

    • Advising on the tax implications of holding and trading cryptocurrency
    • Advising on the tax reporting requirements for crypto activities
    • Advice regarding the viability of using a corporate structure, whether that be in the UK or overseas

    Case Study 1

    We were approached by Mr L who runs a chainlink node.

    We were approached by Mr L who runs a chainlink node. He is remunerated with LINK token and was paying income tax at 45%. He borrows money using his crypto portfolio as security. We advised Mr L on setting up a UK company, such that his income is now being taxed in the company at 19%. Mr L is not currently planning on taking significant sums from the company as dividends and therefore his portfolio can grow much more quickly with only 19% tax leakage.

    Case Study 2

    Mr M is considering investing in HEX which is the first Blockchain Certificate of Deposit.

    The potential gains are significant, and these may not mature for a few years. We discussed the clients aims and objectives and advised that the HEX investment be made via a corporate structure given that personal CGT rates may rise and also that there is some doubt as to whether the return on HEX investment will be classed as income or trading.

    Help us to help identify what advice you need on your cryptoassets

    To assist our team in reviewing your position and to deal with your enquiry more efficiently, please complete our brief questionnaire, after which you will be asked to leave your contact details if applicable. This will enable us to get a better understanding of your current position, and to advise you correctly. Please ensure all fields are completed in as much detail as possible, as we may be unable to deal with your enquiry if we do not have all the information we need.
    Many thanks.

    Question 1

    Did you make a profit on the sale of cryptoassets exceeding the annual exemption for Capital Gains Tax during any tax year (£12,300 for 2020/21 tax year)?

    Question 2

    Did your gross proceeds from the sale of cryptoassets exceed more than 4 times the annual exemption in a single tax year (£49,200 for 2020/21 tax year)?

    Question 3

    Have you participated in any wider crypto activities such as ICO’s, hardforks, airdrops, peer to peer lending, margin trading, staking, gaming or mining? If so, please provide a brief description of the relevant crypto assets involved and the value received from these activities.

    Question 4

    When did you begin investing in Cryptocurrency and how much have you invested to date?

    Question 5

    Please provide an estimate of the current value of your portfolio to date.

    Question 6

    Have you previously declared all of your capital gains or profits to HMRC?

    Question 7

    Have you been regularly trading cryptocurrency – if so, please provide an indication of the number of trades on average per month?

    Question 8

    Are you able to obtain full records of your historic crypto transactions? If not, please provide an indication of the time periods for which records may be missing and an estimation of the number of transactions.