If you're an individual in the UK who has joined the growing ranks of people who mine Helium (HNT) tokens, it's important to understand that profits from your activities are likely to be subject to Income Tax - and in some cases, National Insurance as well. But don't worry - help is at hand. The tax experts at Scholes Chartered Accountants can help you declare your profits and pay the correct amount of tax due. Contact us today for assistance.
How do the UK Income Tax rules apply to Helium mining? The answer really depends on whether or not your mining activities amount to a "trade". A trade, in this sense, means a business - something rather more than a casual or occasional activity.
If your Helium mining activities amount to a trade, then profits from the activity will be subject to Income Tax and National Insurance as profits from self employment. Otherwise, they will be subject to Income Tax (but not National Insurance) under a different set of rules which apply to "miscellaneous income". The miscellaneous income rules are designed as a "catch all", enabling HMRC to tax income that would not otherwise be taxed.
How do you know if what you are doing is a trade? It comes down to a range of factors which need to be considered "in the round", for example:
- the frequency and scale of mining activity
- the degree of organisation involved
- the amount of financial risk you are taking
- the level of commerciality involved
To illustrate how this might apply in practice, HMRC offers the following examples:
"...using a home computer while it has spare capacity to mine tokens would not normally amount to a trade. However, 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 trading activity." (Source: HMRC Manual CRYPTO40200).
One might conclude that an individual buying a single Helium mining device for installation at home, would be liable to declare and pay, via Self Assessment, Income Tax under the miscellaneous income rules. By contrast, an individual who decides to buy two dozen Helium mining devices, for installation at a variety of 'host locations', with the hosts being paid a share of the tokens mined, might very well be considered to be pursuing a trade due to the degree of investment, organisation, and sophistication involved.
Whether or not the Helium mining activity amounts to a trade can have significant tax consequences for you as an individual. There are advantages and disadvantages on both sides:
- profits from self employment are subject to National Insurance, as well as Income Tax, whereas miscellaneous income does not attract National Insurance
- profits from self employment can be used to fund tax-effective pension contributions (they form part of 'net relevant earnings')
- if the activity is taxed as a trade, rather than as miscellaneous income, there is generally more scope to offset a wider range of expenses against the income; for example capital allowances would provide relief for the cost of the mining devices, cabling, and antennae; and it may be possible to claim a deduction for any interest costs associated with the trade as well (for example if you took out a loan to fund the equipment purchase).
If you keep the HNTs, then you also have to consider the Capital Gains Tax position; on a subsequent disposal of some or all the tokens, a chargeable gain or allowable loss may result. The gain is generally based on the difference between the disposal proceeds and the value previously subject to Income Tax, less any other allowable costs. Helium tokens are fungible assets which means they are "pooled" for CGT purposes.
Individuals who are self employed are required to inform HMRC by 5 October immediately following the end of the tax year in which they started to trade. Self Assessment returns should be filed by 31 January immediately following the end of the tax year; any outstanding Income Tax, National Insurance and Capital Gains Tax should be paid to HMRC by the same date.
If you'd like assistance with your Income Tax affairs (including any matters relating to Helium or other mining activities), contact us today.
Read all about our cryptocurrency tax services.