To get your company's Corporation Tax return right, it's crucial to understand how any cryptocurrency activities are taxed. Let's take a look at some specifics.
Your company’s cryptoasset activities may or may not amount to a trade; alternatively they may form part of an existing trade which the company already undertakes.
There is no legal definition of the term “trade”, so to establish whether your company’s crypto dealings amount to a trade HMRC will analyse the facts, considering a variety of aspects including the frequency of transactions, the level of commerciality involved, the amount of financial risk and the degree of organisation.
Where your company’s cryptoasset activities do amount to a trade, it will be taxed under the rules for trades, and be liable to pay Corporation Tax on any profits from those activities.
Where your company’s activities do not amount to a trade, then any profits may still be subject to Corporation Tax either under the “miscellaneous income rules”; or else as chargeable gains.
Companies don’t pay Capital Gains Tax on chargeable gains; they pay Corporation Tax on the gains instead. The amount of any chargeable gain (or indeed allowable loss) is calculated on the same basic principles as for individuals. Companies don’t get an Annual Exempt Amount; they no longer get any indexation relief on newly acquired assets either.
Mining and staking
If your company is mining tokens, how are any profits from this activity taxed? If the activity amounts to a trade, then any profits are taxed as trading profits subject to Corporation Tax.
If the mining activity does not amount to a trade then any profits will still be subject to Corporation Tax, but the profits will be worked out using the miscellaneous income rules. The pounds sterling value of the tokens received will be taxable, with appropriate deductions for allowable expenses.
Under the miscellaneous income rules your company will be unable to claim a deduction for certain expenses that could be deducted if the activities amounted to a trade, for example it cannot normally claim capital allowances (these give relief for expenditure on qualifying equipment, like computer equipment, for example), or deductions for interest costs.
Generally speaking it is therefore better from a tax perspective if your company’s mining and staking activities amount to a trade, and are taxed as such. Purchasing a bank of dedicated computers to mine tokens for an expected net profit (taking into account the cost of equipment and electricity) would probably constitute a trade, because the requisite level of activity, organisation, sophistication and financial risk would probably be present in that scenario.
We help companies to file accurate Corporation Tax returns on a timely basis - including companies that are engaged in cryptocurrency activities.
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