You may have noticed that, yesterday, the British government announced their guidelines on taxation for individuals holding and receiving crypto-assets in the United Kingdom. As you can imagine the document they have released is a considerably lengthy one and is one which, to be honest, doesn’t sit very well with me. I may have my understanding of the document incorrect, that is always a possibility, but from my understanding it seems the British government will be taxing crypto-assets dependent on how a holder receives them.

According to the newly released document individuals who receive cryptocurrency as a payment mechanism will be required to pay income tax on their assets using the pound sterling value of the asset at the time of receipt. This means that you could get paid £1000 in, for example, Ethereum and then watch it drop in value to £500 but still be required to pay tax as if it was worth the initial £1000. This income tax structure is not being limited to payment for services, it is also being applied to income received for mining and airdrops. This could obviously put a lot of people in a sticky situation when considering the volatile nature of cryptocurrencies.



How to Avoid an Un-payable Tax Bill

With that in mind I would like to advise all UK based digital workers who are being paid in cryptocurrencies to take 20% of their payments, at the time of payment, convert it to pound sterling, and set it aside for when their taxes are due. By doing this you will ensure that your tax bill at the end of the year is not one you cannot pay. The obvious risk in doing this is your cryptocurrency appreciating in value. If it does so you will have obviously made 20% less than if you kept it all in crypto but, and it is a big but (J Lo in size), the safety net is in the eventuality of your cryptocurrency depreciating in value between receipt and taxation.

By doing as I suggest above you will be able to ensure that you are able to pay your tax bill regardless of what the market does. This is important as the UK government doesn’t care if you cant afford your bills, they want their money (unless you’re Starbucks, Google or Amazon, of course) and they will hunt you down for it.

What About Investments?

From my understanding, if you buy a cryptocurrency and hold it as a form of investment (such as a normal stock or share) it will only become taxable at the point of you liquidating it. So, if you buy Ethereum at £80 and leave it until it reaches a value of £1000, then withdraw it for pound sterling, you will be required to pay capital gains tax on the £1000 you withdrew, not the £80 you put it. Again, my advice to anybody liquidating crypto would be to set aside at least 20% of their withdrawal amount (unless you are withdrawing over the 20% tax band, in which case set aside the amount for the tax band you are in).

Again, this will prevent any un-payable tax bills when they are due and will leave you in a better standing come the end of the year.

Happiness.