Mining cryptocurrencies like Bitcoin or other Ethereum? Did you know that HMRC has confirmed that crypto mining is taxable? Whether you’re mining as a part-time hobby or a full time endeavour there could be income tax and capital gains tax to pay. In this article we take a closer look, for more about crypto tax head to our “Guide to Crypto Tax in the UK”. 

How is Crypto mining taxed?

HMRC has clarified in the Cryptoassets Manual, that regardless of the token, crypto mining can be subject to two kinds of tax - Income Tax and Capital Gains Tax, depending on the transactions you’ve made. 

Income tax on Crypto mining

Crypto earned from mining counts as regular taxable income. For most UK taxpayers, mining rewards will be taxed as miscellaneous income based on their fair market value in GBP when you receive them. The amount of tax you’ll pay depends on your total annual income during the tax year.

UK Income Tax Rates 

The following income tax rate apply for tax year’s 2023/24 and 2024/25.

*Please note those earning over £125,140 a year do not get a tax-free personal allowance.

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Capital Gains Tax on Crypto mining 

Just like other disposals, when you sell, trade, spend or gift crypto assets received as mining rewards, you are subject to capital gains tax. When your total capital gain for the tax year is over the annual exempt amount you may need to pay tax. The annual exempt amount was £6,000 for the 2023/24 tax year and is £3,000 for the 2024/25 tax year. 

The amount of capital gains tax you’ll pay depends on your total annual income - we’ve highlighted the tax rates below. If your Basic Rate band is not fully used up with income, the unused amount can be used against capital gains for the 10% CGT rate.

Capital Gains Tax rates

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Financial trading in Cryptoassets

In rare circumstances crypto mining activity may amount to financial trading. When this is the case you would need to pay income tax and national insurance on the amounts received,  instead of miscellaneous income. HMRC have confirmed that financial trading is only expected to apply in “exceptional circumstances”, however it can be complex to establish so if you’re unsure we recommend checking with a tax professional. 

How to calculate your Crypto mining taxes

To calculate your taxable income from mining, you need to identify the sterling value of your rewards at the time of receipt, for all mining rewards within the tax year. 

Where mining is taxed as miscellaneous income, appropriate expenses such as electricity costs can reduce the amount chargeable. Where mining amounts to trading income, additional business expenses for example hardware equipment could also be considered a deductible expense. It is best to check this with a tax advisor as HMRC do not specifically mention this in their guidance.

There is a trading allowance of £1,000 for trading and miscellaneous income. If your total trading/miscellaneous income is above £1,000, then you can deduct £1,000 from your total income without needing to justify the costs. 

When you eventually dispose of the cryptoasset, your capital gain or loss depends on the change in value and application of HMRC matching and pooling rules. To work out the gain or loss, subtract the acquisition cost (the matched sterling market value of the asset when received) from the disposal proceeds (the assets’ fair market value at time of disposal).

ℹ HMRC guidance confirms that costs for mining are not allowable costs for capital gains tax purposes.        

Keeping track of your mining income and calculating the tax due on your crypto mining activity can become complex. Fortunately, our crypto tax partner Recap can help. Once you have connected your accounts, their software calculates your income tax and capital gains and generates a crypto tax report for you, ready to share with your Crunch accountant. 

The information provided in this article is for general informational purposes only and should not be construed as financial or tax advice. We recommend consulting with a qualified tax advisor or financial professional who can provide personalised advice tailored to your specific circumstances.