As cryptoassets continue to evolve from niche holdings into mainstream financial instruments, more businesses are engaging with digital tokens, whether through investment, payment solutions, or mining activity.
However, with the rise in usage comes increased scrutiny from HM Revenue & Customs (HMRC), and companies must understand the tax implications of dealing in cryptoassets.
When cryptoassets are treated as disposals
A cryptoasset disposal includes more than simply selling tokens. The definition also covers:
In most circumstances, HMRC treats these disposals as capital transactions.
If the cryptoassets are held as business investments, any gains realised from their disposal will generally be subject to Corporation Tax on chargeable gains.
However, if your business engages in frequent trading or exchange of cryptoassets, HMRC may categorise these activities as trading rather than investing, which would subject profits to Income Tax and possibly National Insurance contributions (NICs) instead.
Even if no tax is due, the reporting requirement still stands. All disposals must be declared, regardless of whether they fall within an exemption threshold.
HMRC’s position on VAT and cryptoassets
Unlike recognised legal tender, cryptoassets are not classified by HMRC as money or currency.
As a result, transactions involving cryptoassets may be liable to Value Added Tax (VAT), depending on the nature of the transaction and the parties involved.
This differs from standard currency exchanges, which are typically exempt.
HMRC does not consider dealing in cryptoassets to be a form of gambling, so no tax reliefs associated with gambling apply.
Airdrops and mining – Varying treatments
Cryptoassets received through airdrops, for example, as part of a promotional campaign, are not taxed upon receipt, but any subsequent disposal may trigger a gain and become subject to Corporation Tax.
Mining, on the other hand, is taxed as income. If HMRC deems the mining activity to be part of a trading business, the income is treated as trading profits.
If not, it is categorised as miscellaneous income, which is still taxable but may not attract Class 4 NICs or count as earned income for student loan purposes.
Costs associated with mining are generally not allowable when calculating gains on the eventual disposal of the mined tokens.
Take crypto compliance seriously
The tax treatment of cryptoassets is highly dependent on the nature and scale of your business’s activities.
Misclassifying your transactions or failing to report gains accurately can lead to penalties and investigations.
Concerned about your cryptoasset obligations? Speak with our experienced tax advisers for support.
