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Cryptoassets and UK Tax- FAQs

UK tax returns are due by the end of January – but do you know whether you need to report your cryptoassets?

31 January is a key date in the UK tax year, as the deadline for submitting a self-assessment tax return.  Hopefully by the time you read this you will be secure in the knowledge that your own return has been submitted, if you are a self-assessment taxpayer.  However, if you have been investing in cryptoassets, are you sure that you have reported everything you need to? Unfortunately, given this is such a new type of asset and the law is still being established, many people are unaware of the tax rules relating to their cryptoasset holdings.

For example, have you ever found yourself thinking along the following lines: 

• I’ve invested into crypto, and I switch between different tokens from time to time, but until I cash in for fiat currency I don’t have any tax issues to worry about. 

• I can’t have a UK tax liability on my crypto, because I’m within the FIG regime, and only deal with offshore exchanges. 

• I don’t need to declare tax on my crypto, because HMRC have never asked me to submit a tax return. 

If so, you need to carefully consider your tax position – read on for more details. 

Capital Gains Tax  – Do I have to pay CGT on cryptoassets? 

In the UK, capital gains tax (CGT) is payable on the disposal of any asset.  In a straightforward case, this would be when you sell something for cash.  For example, if you purchased a Bitcoin in 2010 for £10,000, and you’re selling it now for £80,000, then you would have made a capital gain of £70,000, less any deductible costs. 

Do I have to pay tax if I swap one crypto token for another? 

However, the concept of a disposal goes far beyond a cash sale.  For one thing, it includes an exchange of one asset for another, even where one cryptoasset token is swapped for another.  Therefore, if instead of selling your Bitcoin for cash you had exchanged it for 30 ETH, you have still made a disposal, and so could be liable for CGT on the difference between the price you paid for the Bitcoin, and the market value of the ETH received in exchange. 

Do I have to pay tax if I gift or spend a crypto token? 

More broadly, you will be making a disposal whenever you give up your ownership of a token.  For example, if you make a gift to somebody, or spend it, such as to purchase an NFT or to pay for other goods or services.  Each of these scenarios can be subject to CGT. 

Do I have to pay tax on mining or staking? 

If you are receiving tokens through mining on a proof of work blockchain, or staking on a proof of stake blockchain, then you need to consider whether this is subject to income tax. 

The law on this issue is currently not certain, but HMRC’s view is that generally income from mining or staking will be subject to income tax, after deduction of certain allowable expenses. We can provide advice on this topic.

Remittance basis/FIG regime taxpayers – are crypto gains and income subject to UK tax? 

If you were a remittance basis taxpayer in past years, you do not have to pay UK tax on relevant foreign income, or foreign chargeable gains, from that period if such income or gains are not remitted (or brought back) to the UK. If you qualify for the new Foreign Income and Gains (FIG) regime, you do not have to pay UK tax on relevant foreign income, or foreign chargeable gains, while within the FIG regime. However, can a decentralised cryptoasset recorded on a global blockchain be said to be ‘foreign’? 

Again, the law has not yet fully clarified this point.  However, you need to be aware that HMRC has taken a very wide interpretation of the law, based on the residence of the beneficial owner. HMRC’s position means that remittance basis/FIG regime taxpayers are unlikely to escape UK tax on their cryptoasset income and gains, even where tokens are held for them by a foreign exchange or via a wallet held outside the UK. 

If you find yourself in this position, you need to take legal/tax advice, as the position is likely to turn on the precise factual arrangements, as well as the interpretation of the law.  

What to do about your cryptoasset taxes 

If you find yourself having made cryptoasset disposals, then you need to consider your potential CGT or income tax liability and whether this needs to be reported to HMRC.  CGT and income tax are both self-assessment taxes, which means that it is your responsibility to ensure you have reported anything you need to report, whether or not HMRC have already asked you to submit a tax return. 

The calculations are not straightforward.  For one thing, there will be various deductible costs, to reduce your tax liability.  For another, fungible cryptoasset tokens are subject to the share pooling rules, meaning that it is necessary to work out an average cost based on all of your purchases. 

Specialist software is available, which can help with these calculations.  However, you need to understand the legal interpretation of transactions in order to ensure that the software is analysing your tax liability correctly. 

If the result is that you have made a net loss for the year, then you may not need to submit a tax return, but it can still be worth reporting your losses to HMRC to enable them to be deducted against gains you make in the future.

How Quastels can help with cryptoasset taxes 

Ben Rosen, Partner, and Jack Burroughs, Senior Associate, in the Private Wealth and Tax team are leading experts on the legal and tax treatment of cryptoassets.  We can therefore advise you on the issues that might arise in calculating your taxes, including: 

• which transactions are disposals for CGT; 

• how staking and mining income is calculated; and 

• whether gains and income are located in the UK or abroad. 

We can provide the analysis of your cryptoasset gains and income needed to submit your tax return, and state your legal position to HMRC where the law is unclear or where mistakes may have been made. We are also able to assist with your estate planning for cryptoassets, helping to ensure that your tokens can pass to those you want to receive them, as tax-efficiently as possible. 

To discuss your circumstances and find out how we can help you, please get in touch. 

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Digital Compliance Checks for Sponsor Licence Applications: How Quastels Can Assist

As the UK’s immigration landscape evolves, digital compliance checks have become a crucial part of sponsor applications. These checks ensure businesses sponsoring foreign talent comply with strict Home Office guidelines. For many organisations, the process can be daunting. At Quastels, our refined expertise to immigration law provides tailored support to help businesses navigate these challenges.

The Growing Importance of Digital Compliance

The Home Office has increased scrutiny of sponsor licence applications, resulting in more refusals and compliance checks. This is to ensure only compliant businesses are granted sponsorship privileges. Without preparation, organisations risk application refusals or enforcement actions, including audits and licence suspensions.

Digital compliance reflects the UK Government’s aim to streamline immigration while maintaining high standards. Applications must demonstrate robust systems for managing sponsorship duties, including record-keeping, right-to-work checks, and reporting obligations. Non-compliance can lead to penalties, including licence suspension or revocation. Expert guidance is essential.

At Quastels, we understand these challenges. Our expertise ensures your application meets the highest standards.

Why Choose Quastels for Sponsor Licence Compliance?

Quastels delivers a highly personalised service, focusing on each client’s unique needs. Whether you are a start-up bringing in global talent or an established business expanding your workforce, we offer bespoke solutions.

Trusted Expertise

Our immigration lawyers have extensive experience across industries. We stay ahead of regulatory changes, ensuring our advice aligns with the latest Home Office standards.

Comprehensive Services

We work closely with clients to address compliance risks. Our services include:

• Pre-Application audits: Reviewing internal systems to identify gaps and ensure readiness.
• Policy Development: Drafting and implementing policies for sponsor duties like record-keeping.
• Training and Guidance: Equipping HR and compliance teams to manage obligations effectively.
• Application Preparation: Managing documentation and liaising with the Home Office.

Proactive Problem-Solving

We also resolve compliance issues, including responding to Home Office queries, managing audits, and safeguarding licence status.

Partner With Quastels

Digital compliance checks are a critical part of sponsor licence applications. At Quastels, we make the process seamless. By leveraging our expertise, businesses can focus on growth and innovation while we handle compliance complexities.

If you’re applying for a sponsor licence or need compliance support, contact Quastels today. We’re here to guide you every step of the way, ensuring your business meets digital compliance demands with confidence.

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Right to Work Checks in the UK: A Rising Focus on Compliance Audits

The UK’s immigration landscape has seen significant changes in recent years, particularly in the realm of Right to Work (RTW) checks. The increased focus on compliance audits by the Home Office reflects the government’s drive to tighten immigration controls and ensure that businesses are not employing illegal workers. For employers, this shift places greater emphasis on rigorous adherence to RTW obligations, with failure to comply carrying potentially severe consequences.

Understanding Right to Work Checks

The Right to Work check is a statutory duty for employers to verify that their employees have the legal right to work in the UK. The aim is to prevent illegal working and reduce the incentives for people to enter or remain in the UK unlawfully. Employers must carry out these checks before an employee starts work and follow a prescribed process to avoid liability for any breaches.

The key steps in a RTW check include obtaining original documents from an approved list (such as a passport, visa, or biometric residence permit), checking that the documents are valid and belong to the individual, and making copies to keep on file. Since April 2022, many checks have moved to an online system, particularly for individuals holding biometric cards or settled status under the EU Settlement Scheme. For British and Irish nationals, manual checks remain an option, but the introduction of certified identity service providers (IDSPs) allows for digital verification as well.

The Increasing Scrutiny of Compliance Audits

The rise in compliance audits is an indication that the Home Office is taking a more proactive stance on monitoring RTW practices. Compliance audits are typically unannounced visits where immigration officers assess an employer’s records to ensure they are fulfilling their RTW obligations. These audits can result in significant penalties if businesses are found to be non-compliant, including civil fines of up to £20,000 per illegal worker and criminal liability in cases of intentional non-compliance.

Since Brexit and the end of free movement for EU citizens, there has been a marked increase in these audits as the Home Office seeks to clamp down on illegal working. With EU workers now needing immigration status, many businesses have struggled to adapt to the new processes, making them more susceptible to non-compliance.

The Role of Technology in RTW Compliance

The shift towards digital RTW checks has been a double-edged sword for many employers. On the one hand, the online systems, including the Home Office’s Employer Checking Service, have streamlined the process and reduced the risk of human error. On the other hand, the complexity of the system, combined with frequent updates to immigration rules, has left some employers unsure of their obligations, increasing the risk of compliance failures.

The rise in the use of IDSPs also means that companies can now outsource some aspects of RTW checks, but this does not absolve them of responsibility. The legal liability remains with the employer, meaning businesses must carefully select their service providers and ensure robust internal procedures remain in place.

Preparing for Increased Audits

The best way for employers to prepare for potential audits is by adopting a proactive approach to compliance. This includes conducting regular internal audits of their RTW processes, ensuring that all staff responsible for RTW checks are properly trained, and staying up-to-date with changes in immigration law and Home Office guidance. Clear record-keeping is crucial, as is conducting follow-up checks on employees with time-limited work permission.

Increased compliance audits should be seen as an opportunity to review and strengthen internal procedures. By ensuring robust RTW practices, employers can protect themselves from penalties and contribute to broader efforts to tackle illegal working in the UK.

Conclusion

In conclusion, the heightened focus on compliance audits highlights the importance of adhering to RTW obligations. Employers must be vigilant and prepared for the possibility of an audit, ensuring that they follow the correct procedures and maintain accurate records. As the Home Office intensifies its efforts to enforce immigration law, businesses must stay compliant to avoid costly penalties and reputational damage.

If you or your connections require legal advice, please contact Jayesh Jethwa or fill out our enquiry form below.

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