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Mining Bitcoin, Dogecoin, or other cryptocurrencies? You might be in for a surprise tax bill as HMRC is very clear that crypto mining is taxed. For more on the rules, we’ve teamed up with crypto tax calculator Koinly.
Note: We're only covering crypto mining tax in this article, so if you need to learn about the basics, we've got you covered in our Crunch UK Crypto Tax article.
How is crypto mining taxed?
HMRC has extensive guidance on crypto mining and how it’s taxed, but it’s not always easy to digest for the average reader.
In summary, regardless of the crypto you’re mining - whether it’s Bitcoin, Dogecoin, Litecoin, or something else entirely - HMRC wants a cut.
Depending on the specific transactions you’ve made - your crypto mining rewards can actually be subject to two kinds of tax - Income Tax and Capital Gains Tax. We’ll look at both.
Income Tax on crypto mining
When you receive crypto mining rewards, HMRC generally views this as miscellaneous income, unless it amounts to a taxable trade.
That means you’ll pay Income Tax on your crypto mining rewards, based on the fair market value in GBP at the time you received them.
The amount of tax you’ll pay depends on the tax band you’re in based on your total annual income. You can see the Income Tax bands below:
*Please note those earning over £125,000 a year do not receive a tax-free personal allowance.
But depending on what other transactions you’ve made, Income Tax might not be the only tax you pay on your crypto mining rewards.
Capital Gains Tax on crypto mining
If you later dispose of your crypto mining rewards by selling, swapping, spending, or gifting them (excluding to your spouse) then you may also end up with a Capital Gains Tax bill too.
If the value of your mining rewards has increased since the time you acquired them, then when you dispose of them you’ll have a capital gain. If this is the case, you may need to pay Capital Gains Tax if you’re over the annual exempt amount. In the 2022-2023 tax year, the annual exempt amount was £12,300, but this has been cut for the 2023-2024 tax year to £6,000. So if you have capital gains over that amount from crypto mining rewards and other activities, you’ll pay Capital Gains Tax on this.
The amount of Capital Gains Tax you’ll pay depends on your total annual income in a year. You can see the Capital Gains Tax bands below:
HMRC guidance in regards to cost basis calculations is clear that costs for mining activities - for example, mining equipment and electricity - do not count as an allowable cost because they're not 'wholly and exclusively to acquire the tokens'. However, the guidance also states it may be possible to deduct some of these costs against profits for Income Tax purposes.
As such, you should speak to an experienced crypto accountant for bespoke advice, as well as read the existing general guidance on deductions for miscellaneous income.
How to calculate your crypto mining taxes
Mining taxes are time-consuming. You’ll need to identify the fair market value in GBP of your crypto mining rewards on the day you received them, throughout the entire financial year to calculate your income from mining. As well as this, you’ll need to identify any disposal of crypto mining rewards and calculate any subsequent capital gain or loss, all using the share pooling cost basis method.
Fortunately, our crypto tax partner, Koinly, can do all this for you and save you hours, as well as generate your HMRC crypto tax report, ready to hand over to your Crunch accountant.
Get an exclusive 30% discount on your Koinly crypto tax report when you sign up to Koinly using code CRUNCH30.
Disclosure
The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser or registered tax agent. You should consider seeking independent legal, financial, and taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.
