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2023-02-09

Yield farming or DeFi interest

Earnings from yield farming or lending crypto in DeFi platforms are taxed as income at the time they are received. However, depositing into and withdrawing from a liquidity pool may be treated as a disposal, which is a capital gains event.

  • Example: Earning £500 in interest from a DeFi platform is subject to Income Tax.

Payments for goods or services

Receiving cryptocurrency as payment for goods or services is treated as income at its market value when received. There are instances where the “value” of the work will be taxed instead of the value of the crypto received. Professional advice should be taken if you are unsure.

  • Example: If you're paid 0.2 BTC for freelance work worth £6,000, this amount is subject to Income Tax.

Receiving airdrops

If you actively participate to receive an airdrop (e.g., completing tasks), the tokens are treated as income at their market value upon receipt.

  • Example: Earning £100 in tokens from an airdrop after completing tasks is subject to Income Tax.

Mining rewards

Mining rewards are taxed as income. Those undertaking mining activities to an extent to which they are operating a business will be subject to additional tax obligations.

  • Example: Earning 0.5 BTC through mining worth £10,000 at the time of receipt is subject to Income Tax.

Staking rewards

Cryptocurrency earned through staking is considered income at the market value at the time of receipt.

  • Example: If you earn 0.1 ETH through staking worth £200, this amount is subject to Income Tax.

Providing liquidity

Adding liquidity: If adding assets to a liquidity pool results in a change of ownership or creates a new token (e.g., LP tokens), it may be considered a taxable disposal, with CGT applying to any gains. The answer to this can usually be found within the terms and conditions of the protocol.

Removing liquidity: Removing assets from a liquidity pool may also be a disposal, potentially triggering CGT based on the gain or loss relative to the cost basis.

Liquidity pool rewards are generally treated as taxable income upon receipt, subject to Income Tax.

Selling airdropped tokens

Selling tokens received through an airdrop is a taxable disposal.

Tokens received without any action (eg, unsolicited distributions) are not taxed as income upon receipt. Instead, they are subject to Capital Gains Tax (CGT) when sold, with the cost basis typically being zero or the fair market value at the time of receipt if explicitly stated by HMRC.

Tokens earned through performing tasks (eg, completing activities) are taxed as income at the market value in GBP upon receipt. When sold, the gain or loss is subject to CGT, calculated using the market value at receipt as the cost basis.

  • Example: You perform a series of tasks to qualify for an airdrop. You then sell that airdropped token for £500 and it has a cost basis of £200. The £200 cost basis would have been subject to income tax in the tax year in which it was received and the £300 gain is subject to CGT in the tax year in which the token is sold.

Selling NFTs

Disposing of NFTs is treated similarly to crypto disposals, with gains subject to CGT.

  • Example: If you bought an NFT for £1,000 and sold it for £3,000, the £2,000 profit is taxable.

Gifting cryptocurrency (excluding spouse or civil partner)

Gifting crypto to someone triggers CGT based on the market value at the time of the gift. Gifting to registered charities or your spouse or civil partner does not trigger a taxable event. Here, we have often seen individuals gifting tokens to others but keeping them in their own wallet. If this is the case, it is very important to document the gift. Consider speaking to a tax advisor if you are uncertain of your position.

  • Example: Giving 1 ETH to a friend worth £2,000 incurs CGT on any gains above its cost basis.

Using crypto to purchase goods or services

Spending cryptocurrency on goods or services is considered a disposal.

  • Example: Paying 0.5 BTC for a laptop is a taxable event. If the BTC had a cost basis of £5,000 but was worth £10,000 at the time of the transaction, the £5,000 gain is subject to CGT.

Crypto-to-crypto trades (swaps)

Exchanging one cryptocurrency for another (e.g., BTC for ETH) is treated as a disposal for tax purposes.

  • Example: Swapping BTC worth £5,000 for ETH creates a taxable event, with any profit based on the cost basis of your Bitcoin. The value of the BTC when swapping will be the proceeds and will also become the cost of the ETH that has been obtained.

Selling crypto for GBP

Any profit made when you sell crypto for fiat currency (e.g., GBP) is a taxable event.

  • Example: If you bought BTC for £10,000 and sold it for £15,000, you have a taxable gain of £5,000.

How Investing vs Trading impacts tax

In most cases of buying and selling cryptocurrency as a retail investor, you are participating in investing rather than trading. The two are treated differently for tax purposes.

  • Investing is subject to capital gains tax or income tax, depending on the nature of the transaction.
  • Trading in this case refers to self-employment which is subject to income tax and National Insurance Contributions.

The key difference between investing and trading – along with the different tax treatments, is how losses generated in the crypto-activity can be used.

In their guidance, HMRC have explicitly stated that they would expect it to be exceedingly rare that any crypto-activity constituting buying & selling crypto would be classified as “trading”.

If you are uncertain, speak to a tax advisor as there are always exceptions, including but not limited to, developing tokens and large scale mining.

How is crypto tax calculated in the United States?

You can be liable for both capital gains and income tax depending on the type of cryptocurrency transaction, and your individual circumstances. For example, you might need to pay capital gains on profits from buying and selling cryptocurrency, or pay income tax on interest earned when holding crypto.

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blog
09
 
Feb
 
2023
 - 
10
min read

Product update - 19 July 2022

At Summ (formerly Crypto Tax Calculator), we are constantly working on improving our product so you can have the best experience at tax time. Check out our blog for the latest product updates.

Key takeaways
This tax guide is regularly updated: Last Update  
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We’re SOC 2 Type 1 certified!

Data security and compliance is critical to everything we do at Summ (formerly Crypto Tax Calculator)

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If you would like to learn more about the privacy and security practices which we follow at Summ, visit our new SOC 2 security page.

New Features

UI Uplift: New nav bar

The nav bar is now in our one and only purple. As a part of this update, the Help tab has been replaced with the help icon on the top right of the screen next to the user settings. Don’t forget you can always get in touch with our support team with the purple popup on the bottom right of your screen.

New reconciliation view: Suspected Spam Token

We have created a new reconciliation flow for Suspected Spam tokens. Our algorithm will suggest a list of spam cryptocurrencies, allowing you to then confirm whether or not they should be marked as spam for your tax report.

Clickable rows in report summaries

By clicking on a row in the report summary, a new tab will open up. This tab will show all of the transactions which made up the calculations of the values within that particular row in a report summary. This is valid for all report summaries.

New Get Report popup

Our download reports popup UI has been updated, making it easier than ever to download both PDFs and CSVs for your reports.

New Integration – Lykke

We’re excited to announce that our integration with Lykke is now live! Simply import your transaction history CSV, and we will pull in all of your Lykke transactions, including deposits and withdrawals.

Minor Changes

Since our last product update, we've implemented the following minor updates:

  • Our developers have worked their magic to improve the transaction table's performance

  • Ability to import wallet from the nickname wallet popup

  • Date dividers have been re-introduced in the review transactions table

  • Updated the import steps for Liquid API and ByBit API

  • The Unknown Counterparty reconciliation view has been renamed Suspected Missing Imports

  • New icons on the account menu

Defect Fixes

Since our last product update, we've implemented the following fixes:

  • When hovering over a currency with a shorted name (e.g. CRYPTOTA…), we now show the full name on hover

  • We now show both transaction ID’s and include links to both blockchain explorers for bridge transactions

  • We now only show Missing Market Price warnings for taxable events, rather than also showing this for transfers and non-taxable transactions

The information provided on this website is general in nature and is not tax, accounting or legal advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness of the information having regard to your own objectives, financial situation and needs and seek professional advice. Summ (formerly Crypto Tax Calculator) disclaims all and any guarantees, undertakings and warranties, expressed or implied, and is not liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or incidental or Consequential Loss or damage) arising out of, or in connection with, any use or reliance on the information or advice in this website. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information in this website is no substitute for specialist advice.

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