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Cashback is a common rewards system and is now offered by some crypto exchanges. Today we’re exploring the world of cryptocurrency cashback and asking our crypto tax partner Recap to outline the tax implications. If you’re using a crypto-cashback card, or you are thinking of getting one, this article is for you!
What is crypto cashback?
Some crypto platforms like Crypto.com and Revolut offer rewards to their users for using their crypto cards to make purchases. These cards are like a regular debit card and can be used to make purchases in most retailers, rewarding users for qualifying purchases.
Cashback typically takes the form of a percentage return on purchases paid in crypto. For example, if the Crypto.com card offers 5% back in CRO token and you spend £100 - you will receive £5 worth of CRO as a reward for qualifying spends. Users will normally need to add funds to their card via their exchange or wallet before making a purchase.
Is crypto cashback taxable?
Crypto cashback might be taxable. When the cashback is received, some users may be liable for income tax. All users should be aware they will be subject to the capital gains tax regime when they eventually sell the asset.
HMRC do not have specific guidance on the tax treatment of crypto cashback rewards, however there’s guidance on the receipt of cashback in general, which is likely to apply. HMRC state:
"A sum, however described, which is received by an ordinary retail customer as consideration for the purchase by the customer of goods or services should not be regarded as a taxable receipt in computing profits under Case VI. This is the case whether the payer is the provider of the goods or services or another party with an economic interest in ensuring the transaction takes place."
Assuming this guidance does also apply to cryptoasset cash back rewards, then they do not need to be treated as taxable income at the time of receipt. The tokens will most likely be treated as acquired for Nil value and there will be a capital gain when they are disposed of. Good news for crypto cashback card users!
ℹ If the taxpayer is a “financial trader” in cryptoassets or the cashback is received in the course of another trade then the reward will be treated as taxable trading income.
Disposing of crypto cashback rewards
If you receive crypto cashback and later sell, trade, spend or gift the reward, you’ll be making a taxable disposal, subject to capital gains tax. In order to calculate the capital gains tax owed, we need to know the cost basis of the asset being disposed of.
Cashback rewards are normally non-taxable airdrops and unfortunately there’s no HMRC guidance on the acquisition cost. Although this remains an area of uncertainty, we’ll demonstrate two possible approaches.
The worst case scenario for taxpayers, would be to assume the acquisition cost of the cashback was Nil. This is the most likely way HMRC will treat this. For example, if I receive 100 CRO as a reward and then swap this for £20 GBP I would pay capital gains tax on £20 - £0 = £20.
On the other hand, it may be possible to argue that the cost-basis for airdropped rewards should be the fair market value of the reward at the time it was received, if the tokens were not newly minted to you For example, if I receive 100 CRO (valued at the time of receipt at £10) and later swap this for £20 GBP, I would pay capital gains tax on £20 - £10 = £10.
Although we’re still waiting for clarity on the taxation of crypto cashback it’s important to stay compliant. If you’re feeling unsure take a look through our Crypto Tax Guide or reach out to the Crunch team.
If you’re ready to start tracking your crypto cashback and want to get on top of your crypto tax liability then check out our partner Recap.
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.
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