This is a key issue for a large number of users, especially in the ALTcoin arena. If you are deemed to be trading by HMRC then you will be subject to Income Tax treatment on your cryptocurrency profits, not Capital Gains Tax.

The higher echelons of the Income Tax are at the punitive rates of 40% & 45% with an effective tax rate of 60% on any income between £100,000 & £123,000 (caused by the loss of personal allowance)

We believe the best way to analyse Crypto as a substitution for shares in their current format and as such we can gain precedent from case law, especially those summarised in BIM56860 . The ‘Badges of trade’ may be considered but are unlikely to give a useful indication as there is no clear boundaries or checklist as to whether you are, or are not trading.

Salt v Chamberlain was the initial case that decided that Mr Salt was not trading. He had 200 transactions over 5 years and used his mathematical knowledge and skills in order to profit from share movements. It gives us reason to believe that simply buying and selling securities doesn’t constitute a trade, ut highlighted the limited usage of the badges of trade in such a case.

When looking at Manzur v HMRC we can see that he made between 200/300 trades in a year with a mixture of short & longterm holdings. He spent a small amount of time per day (2 hours) and had a mixture of his own expertise and online brokers. He was trading for himself and did not take profits from any clients.

As such they decided that Mr Manzur was managing his portfolio rather than trading in stocks and shares. The HMRC conclusion sums up the situation rather well.

The cases discussed above show that no one factor can determine whether an activity has been taken ‘out of the norm’. Some factors may be more relevant in some cases than in others. You have to take a view after considering the relevant circumstances as a whole.

When calculating the number of trades I’d suggest that any immediate FIAT-BTC-ALT would actually classed as one trade and not two and vice versa. If you are spending less than a few hours a day, have a mixture of long term and short term holdings you may be able to argue CGT as per Manzur. With Crypto being hugely more volatile than the stock market, you may also be able to argue that more time is required to manage a portfolio of cryptocurrencies and the number of trades required is also significantly higher, however that may need to be argued at the tribunal.

It’s one of “overall impression” and HMRC have to displace the assumption that you aren’t trading.

I think the main points HMRC will need to prove are: