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Your crypto tax and accounting questions answered

Updated: Dec 28, 2023

A panel of experts in crypto tax, accounting and technology recently tackled viewer questions during a Koinly-supported webinar on the treatment of crypto assets.

The most recent self-assessment season has seen a surge in new and existing clients needing help with managing their cryptocurrency affairs, and the recent crypto crash has only added to the mess.

As a new, innovative technology, many accountants are naturally keen to start offering crypto tax services and thus need to make sure their knowledge is up to date with HMRC guidelines on crypto assets.

You can find the full list of questions and watch the webinar in its entirety on demand here.

Q: Let’s say I bought BTC and then exchange it for ETH. Are there any tax implications? If yes, what is taxed in this case?

A: This would be a disposal of BTC and an acquisition of ETH. These are two separate asset classes, so it is possible there may be a capital gain or loss on the disposal of BTC – providing this transaction is part of investment activity and not a trade.

Q: If clients do not have a detailed log, do some platforms provide a transaction listing as a bank account does?

A: Platforms such as Koinly will scrape the data from transactions between exchanges as well as wallets that individuals use to hold their crypto. They will then be able to put together a detailed log of transactions, which may still need some fine-tuning.

Q: When does investing become trading? Is it anything to do with the frequency of trades?

A: This can be even more subjective in crypto. The badges of trade need to be considered, as they would in any determination of a trade.

Q: What would be the best process when transactions are held on an exchange that is now no longer active and the client cannot access their transactional history? Is it only when a profit/loss is crystallised that a self assessment should be prepared?

A: It may still be possible to get transactional history from wallets that clients use if they transferred their tokens from exchanges into non-custodial wallets. However, it may be possible that they undertook a number of transactions on the exchange that may have given rise to tax implications. But if that exchange is no longer active, then it is likely those details will never be found. Self assessment becomes relevant when the usual capital gains criteria are met, or if receiving crypto in the course of a trade.

Q: For convenience, my client opened a wallet in their personal name. Can this now be assigned to a limited company? If so, what procedures should be used so that HMRC is happy with this?

A: A wallet is simply an identifier on the blockchain – an address that has certain assets attributed to it. It is possible to assign this to a company, in the same manner that other assets can be contributed to a company, and would suggest the relevant documentation is drafted accordingly. I would also look out for any gains that might crystallise on transferring to a limited company.

Q: If a client receives cryptocurrency instead of cash for doing some work. what would the tax be if a person is self-employed or a company? The client intends to keep the cryptocurrency and not dispose of it.

A: Receiving crypto in return for goods or services is a taxable event, the value would be the value of the crypto once received. If the client then held onto the cryptocurrency and disposed of it at a later date, there would be further capital gains implications.

Q: But the transaction hasn’t been realised – so no cash until liquidated or is HMRC now accepting crypto payments for tax?

A: HMRC does not currently accept crypto for payments in tax, which highlights some of the difficulties with dry tax charges arising when swapping between digital assets.

Q: What is the future especially to protect yourself against a situation that UST (collapsed crypto firm TerraUSD) had?

A: Crypto is a high-risk investment and can be incredibly volatile. The situation with UST could be considered a black swan event in crypto- a stablecoin, designed to hold its value, failed, and crashed the market with it. The only advice I can provide is to do your research on a project, ensure that you are happy with the risks associated, and never invest more than you are willing to lose.


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