Skip to Content

Bitcoins and taxes

Bitcoins and taxes
Tuesday, December 19, 2017

Tulip, meet cryptocurrency. Bitcoin is now, perhaps, the biggest bubble in history – eclipsing Tulipmania, the dot com bubble, the housing bubble, the South Sea bubble, and the hard-to-explain enduring popularity of Bargain Hunt, staple daytime fodder on BBC One.

 

A few of us will have invested in Bitcoins many years ago not quite knowing what was about to follow.

 

And we’ve had the odd call or two in from clients asking about what the tax situation surrounding Bitcoin is.

 

Cryptocurrencies are a brand new thing – they’re ten years old in 2018. Tax law on them is still pretty much untested but here’s a summary of HMRC’s position.

 

But first, what is a bitcoin?

 

This is really difficult to explain. It’s more a question for theoretical mathematicians than accountants.

 

Bitcoin is a currency but it has no notes or coins. It’s not issued by banks. It’s not regulated by central governments. When we pay our tax, we don’t pay it in bitcoins.

 

Transactions are recorded on a ledger. Bitcoins are mined using a hashing sequence that requires you to prove you’ve gone through billions of mathematical puzzles to find a new one. There will never be more than 2.1 quadrillion bitcoin parts in existence.

 

At time of writing, the price is hovering around $20,000 dollar per bitcoin. In January 2015, you could buy bitcoins for $173.

 

Some say it is the currency of the future. Some say it’s a bubble. No-one really knows because bitcoins have not been long in existence and there is no track record to be able to say if the rise in price is supported by fundamentals or by leveraged investor cash.

 

I bought Bitcoin a few years ago and my Bitcoins are now worth £10m

 

If that is you and you bought your Bitcoin a few years ago for £10,000, what tax would you face?

 

If you bought the coins as an investment and you’re not a Bitcoin dealer or miner, you would be subject to Capital Gains Tax.

 

There is an annual allowance for Capital Gains Tax of £11,300.

 

If this was you, you’d subtract your £10,000 investment from your £10,000,000 sale price, leaving you with £9,990,000. The first £11,300 of your gain would be exempt so the profit on which you pay your Capital Gains Tax would be £9,978,700.

 

Assuming you had no other income during the year, you would pay 10% on the first £33,500 of your gain and 20% on the remaining £9,945,200 – your final bill would be £1,992,390.

 

I am a Bitcoin trader or miner and my Bitcoins are now worth £10m

 

If you are a miner or a trader, you will pay Income Tax and National Insurance on your gains, not Capital Gains Tax, because it’s your trade.

 

According to Marketwatch, the average cost to mine a Bitcoin in Louisiana at the time of writing (December 18th 2017) is $3,224, or £2,409 at the exchange rate at time of writing.

 

It wouldn’t happen this way but let’s say you mined your £10m worth of Bitcoin on one day – that 668 Bitcoins. The cost of the electricity needed to mine this number of Bitcoins would be 668 multiplied by £2,409 equalling £1,611,586.

 

Your profit would be £10,000,000 minus £1,611,586, or £8,388,413.

 

You would pay £3,930,769.82 in tax (comprising £3,760,586.30 in income tax, £170,183.52 in National Insurance Class 4, and £148.20 in National Insurance Class 2).

 

My company is a Bitcoin trader or miner and its Bitcoins are now worth £10m

 

If you are the director of a Bitcoin mining or trading company, you will pay Corporation Tax on your gains.

 

Taking the example above where there is a profit of £8,388,413, your company would pay 19% of that in tax leaving it with a bill of £1,593,798.28.

 

Should I worry about VAT?

 

If you buy, sell, transfer or convert Bitcoin to a standard currency, no VAT will be payable.

 

If you’re a Bitcoin miner and you’re VAT registered, you’d be able to claim back the VAT you’ve been charged on your electricity bills.

 

Remember…

 

If this is your situation, remember that we’ve been brilliant accountants to you and we love you very much! To hear the depth of our love, please speak to your accountant at Panthera on 01235 768 561 or email the team at enquiries@pantheraaccounting.co.uk.

WHAT OUR CLIENTS SAY

For us, there is nothing better than a happy customer. Here are just a few that let us know how much we mean to them.

Pete Dungey

Simple, efficient and most importantly, hassle-free.

We found Panthera via our search for a Xero expert. We knew the software we wanted to use, and needed a forward-thinking accountancy partner who could get us up and running, and teach us the ropes moving forward. Tory and her team have always been on hand to answer our questions, and help us to grow as a business, particularly during periods of big change, such as becoming VAT registered. They are always on hand to alleviate any concerns and help to keep our records in order, which makes our year-end accounts an absolute breeze! Being based in Bristol, our relationship is entirely email based, alongside one consolidation meeting at year end - this keeps things simple, efficient and most importantly, hassle-free.

Pete Dungey | Kaleido Grafik Limited
Anita van Eijndhoven

Talk Our Language

The support and service we receive from Panthera Accounting is very good. Everything from regular meetings, a prompt e mail response and the transition of our Xero software (which we find very pro active indeed) has and is all remarkably efficient. We find Panthera talk our language and make any process as painless and easy as possible.

Anita van Eijndhoven | Quidne-IT
Ash & Tim Lane

Panthera brush aside the stereotype of the typical accountant

We got in touch with Panthera Accounting by way of a recommendation; we haven't looked anywhere else since. They are an extremely professional yet relaxed group of people. We were slightly daunted by the idea of accountants but Panthera brushed aside y the stereotypes. They are very understanding when answering any questions we may have. They are completely efficient, offer sound business advice, and are fantastically priced. We will continue to recommend them.

Ash & Tim Lane | Starveacre Fencing
Jayne Johnson

An Asset to my Business!

The whole team at Panthera are great! Working with them has been a huge support to my growing business. They help me to understand the numbers I need to know. They give me technology solutions like Xero so that I can process things quickly and have access to my own figures. They are quick to reply, highly knowledgeable, nothing is too much trouble and as well as making sure that everything is compliant and on time, they are enthusiastic, professional and fun to work with.

Jayne Johnson | Better People
John Baker

Absolute joy - they provide a first class service on every level

Working with Tory and the team at Panthera is an absolute joy - they provide a first class service on every level; from simple Xero issues through to more complicated tax enquiries, they’re always on-hand to help me get it right. I’m certainly not their biggest customer, but I’m always made to feel like their most important one.

John Baker | BKR Solutions
John Castle

Professional and Friendly

I would like to say that Panthera Accounting have helped me with my business accounts for more than 4 years now. They have consistently offered an excellent competitively priced service that works both professionally and in such a friendly way that I would highly recommend them to everyone considering using their services.

John Castle | Ilexanna Limited & Birch Castle Homes Limited
Jonathan Morrison

They are always there to answer queries and sort out issues

I had been with Mr Dunn for 20 years when upon his death Panthera took over the business. They now play a bigger part in the running of my business, they do all the stuff that has to be done but I don't like doing ie book keeping, VAT, wages, and returns. They are always there to answer queries and sort out issues and make sure all Tax deadlines are met. Their costs are fair, service is great and I have and would highly recommend them.

Jonathan Morrison | Wallingford Builders
Pippa Scott

Professional, friendly and personal service.

Panthera Accounting have gone above and beyond the call of duty to guide and support our Company. They offer a professional, friendly and personal service that can take the stressful and sometimes frightening feelings out of running a business. They have guided us through the working of Xero and have offered “teaching sessions” on the day to day running of the accountancy package. Our only regret is that we didn’t join their team earlier.

Pippa Scott | Scott's Commercial Services Limited
Sara Southey

Panthera puts the personal back in to accountancy!

Tory and her team have provided a friendly, approachable and helpful service from the start. They have delivered a quality service, above and beyond anything I could have expected. Panthera, with the help of the Xero package, have taken the stress, strain and confusion out of managing my company and personal accounts. I look forward to working with them for many years to come.

Sara Southey | Bluestones Garden Design
Tracey Miller

Panthera are fantastic.

Panthera are fantastic. Always professional, going the extra mile for their clients and delivering superb service. I recommend them all the time to my clients.

Tracey Miller | Bigger, Brighter, Bolder BBB

CONTACT US

Lets Get Started

Panthera will use the details that you have entered into this form to communicate with you on the subject of your message, and for no other purpose. Please see our privacy policy for more details on how we manage your data.

Move to Panthera

Moving to Panthera is as easy as 1,2,3...

  1. We have a short initial discovery meeting (online or in-person) to create the perfect service package for your business
  2. You e-sign your terms of engagement
  3. We get your authority to talk to HMRC on your behalf

And that’s it! From contacting your previous accountant, to updating Companies House with your new registered office address, let us handle all of the admin so that you can get on with running your business, safe in the knowledge that everything is going smoothly in the background.

TALK TO US