If your employer doesn’t pay for mileage allowance at all you are entitled to claim Mileage allowance relief (MAR) on your work-related mileage at the HMRC advisory mileage rates.
For the first 10,000 miles for cars and vans the rate is 45p, then the rate drops after 10,000miles to 25p per mile. for motorcycle this is 24p for all mileage and Bicycles is 20p per mile. Remember you can claim up to 4 years if you have not done the claim previously.
If you are reimbursed by your employer at a lower rate than the HMRC approved mileage rates, you are entitled to Mileage allowance relief (MAR) for the difference. For example, if you drive your own car and have been reimbursed at 30p per mile for 3000 miles, you can claim the mileage allowance relief on £450 (3000*0.15).
How do I claim mileage relief?
The are 2 ways you can claim for mileage tax relief:
If you already complete a tax return (self assessment) the mileage claim can be added on the business travel (on the employment pages on your tax return)
Submit your claim using a P87 form. This can be submitted online through the HMRC Government Gateway, or printed and sent by post.
Remember to claim mileage allowance you will need to keep a mileage log/record for all business trips done during the year. For record to be sufficient as per advisory you need the records to contain the following details:
Date of trip
Start and finish point always good idea to included full address and post code.
Mileage allowance already received from employer.
With advanced technology nowadays you do have apps you can use to track your mileage, or a hard copy record is also sufficient. You can find more information on how to make a tax relief claim here.
For more information about mileage and expenses claim, or If you have any further questions about tax reliefs, or any other accounting matters, please contact us. We can offer this as a service, but it will incur a small fee.
On 22nd November 2023, the Chancellor of the Exchequer, Jeremy Hunt, set out the UK Government’s plans for the country’s economic growth in the 2023 Autumn Statement. This blog will outline the effects of these announcements on the public.
Growth, Inflation & GDP
It has been announced that forecasts produced by the Office for Budget Responsibility (OBR) show that the UK economy will grow by 0.6% this year and is now 1.8% larger than it was pre-pandemic. This is despite predictions in March that it would shrink by 0.2%. The rate of growth predicted earlier this year, however, was higher, meaning that the current forecast sees only a 0.6% improvement in growth for 2027 when compared with the March projections.
Inflation is currently at 4.6% and it is expected to fall to 2.8% by the end of 2024. A target of 2% has been set for 2025.
The Autumn Statement shows that GDP is expected to rise over the next four years, reaching 2% in 2027.
National Living Wage
From April 2024, the National Living Wage will increase to £11.44 per hour. This is a 9.8% increase from the current rate of £10.42. It is important to note that from April 2024, the rate bracket for ages 21-22 will be scrapped; workers aged 21 and over will be entitled to the National Living Wage.
Rates for the 2024 National Minimum Wage (workers aged 20 and under) are as follows:
Under 18s and apprentice rates – £6.40 per hour
18–20 year-olds – £8.60 per hour
Please note that the apprentice rate only applies during the first year of the apprenticeship if the apprentice is aged 19 or over.
Employee National Insurance
Starting on 6th January 2024, Employee National Insurance will be cut to 10%. This is a 2% decrease from the current rate of NI. On an average salary of £35,000 a year, there will be a saving of £450. The government believes that decreasing employment taxes will increase employment rates as a higher net wage acts as an incentive to find work.
Taxing the Self-Employed
Self-Employed individuals currently pay Class 2 National Insurance at £3.45 per week (if your profits are over £12,570) and Class 4 National Insurance at 9% on profits between £12,570 and £50,270. The Chancellor has announced a reform for how the self employed are taxed. This means that, from April 2024, the Class 4 NI rate will be reduced to 8%. Class 2 NI will be abolished.
In line with the pensions triple lock, the state pension will increase by 8.5% to £221.20 per week.
A call for evidence has been launched by the government relating to a “lifetime provider model” of pension schemes. This would allow contributions to be paid into an existing scheme when changing employers, rather than having several “small pot” pensions.
Benefits & Back to Work Scheme
It has been announced that Universal Credit and other benefits will be increasing by 6.7% from April 2024. This is in line with the September 2023 inflation figure.
£1.3 billion is set to be invested over the next five years to help those with health conditions find work. A new “Back to Work” scheme will also be introduced which will implement mandatory work placement for claimants who have been unemployed for 18 months. If this is not engaged with the claimant may have their benefits claim closed.
Full expensing is a form of relief which allows businesses to claim 100% of capital allowances on investments in qualifying fixed assets. This was originally intended to cease in March 2026; however, it has been announced today that it will now be implemented permanently.
Research and Development
The Research and Development Expenditure and SME relief schemes will be merged in an effort to simplify tax. The tax rate applied to losses will be reduced to 19%. This will apply to R&D expenditure incurred during accounting periods beginning on or after 1st April 2024.
The following information has also been announced within the Autumn Statement:
The local housing allowance, which has been frozen for three years, will increase, being raised to the 30th percentile of local market rents.
The Small Business Procurement Act means that 30-day payment terms will now apply throughout the subcontract chain.
The small business multiplier has been frozen for another year. It has remained at 49.9 pence since the 2020-21 tax year.
Business rates relief for hospitality, retail and leisure has been extended for another year.
Alcohol duty will be frozen until August 2024.
Tobacco duty will increase from 22nd November 2023.
A further four investment zones will be introduced. These will be in the East Midlands, West Midlands, Greater Manchester and Wrexham, Wales. They hope to increase employment in those areas.
Increased funding has been proposed for apprenticeships, technology and AI development, and regeneration projects.
£4.5 billion has been proposed for supporting companies on the approach to the Net Zero deadline over the next 5 years.
If you have any concerns regarding the changes set out in the Autumn Statement and how they could impact you and your business, do not hesitate to contact us. You can find our contact information here.
On 1st January 2023, changes were made to fines for late VAT filing and payments. Previously, the default VAT surcharge system was in place. This system meant that you would be fined a percentage of the VAT owed. This started at 2%, then increasing to 5%, 10%, and 15% every time a payment or VAT return was missed.
The new system implements a point system for late submissions, as well as new penalties and interest charges on late payments.
Late Filing Points System
The late filing point system works on the basis that every time VAT is submitted late, you will receive a penalty point. Once the penalty Point threshold is reached, a £200 penalty is applied. A further £200 penalty is issued for every late submission whilst at the threshold. The threshold is dependent on how frequently you submit your VAT return:
Penalty Points Threshold
HMRC will adjust both the threshold and the points you have been issued if you change your accounting period.
The penalty rules do not apply to the first VAT return, final VAT return, or one-off returns which cover a period other than those listed in the table above.
HMRC will issue a penalty decision letter to your registered business address if a penalty or penalty point has been given. This letter will offer a review with HMRC where you will be able to appeal the penalty. Also, penalties can be checked, and reviews can be requested through your VAT online account.
Late Payment Penalties
Late payment penalties have been introduced and can apply to any VAT that has not been paid in full by the due date. This is excluding payments on account and annual accounting scheme installments. The penalty you will receive is dependent on both the number of days that the payment is overdue, and if it is your first penalty:
First Late Payment Penalty
Second Late Payment Penalty
Payments up to 15 days overdue
Payments 16-30 days overdue
2% of the VAT owed at day 15
Payments 31 days or more overdue
2% of what was outstanding at day 15. Plus 2% of what is still outstanding at day 30.
Daily rate of 4% per year on the outstanding balance. This is charged from day 31 until the outstanding balance is paid in full.
A period of familiarisation has been implemented until 31/12/2023. This means that first late penalties will not take effect if a payment is made within 30 days of the payment due date.
Much like the late filing penalties, HMRC will notify you of a late payment penalty via a penalty decision letter and details of the penalty will be available through your VAT online account.
Late Payment Interest
Late payment interest will now be applied from the first day that a VAT payment is overdue until the day it is paid in full. The interest rate directly correlates with the Bank of England’s base rate. It is calculated as the base rate plus 2.50%. This means that the current interest rate is 7.75%.
Payments that are subject to interest include:
Corrections and Amendments
HMRC VAT Assessments
Missed Payments on Account
Late payment penalties
Late submission penalties
If interest is being applied to an amount which should be paid in installments, the interest will be charged on the outstanding balance until the tax has been paid in full.
Unfortunately, HMRC does not have an appeals process for late payment interest. However, you can object to the interest for a variety of reasons, such as, you believe HMRC has caused a mistake or there has been any unreasonable delay, you dispute the relevant date or effective date of payment, or you are questioning the legislation. It is important to note that interest objections can only be accepted if the tax relating to the interest has been fully paid. To discuss interest objections with HMRC, contact the VAT General Inquiries Helpline.
VAT Repayment Interest
On the other hand, if you are owed a VAT repayment from HMRC will also be applied. Like the late payment interest, the interest rate is dependent on the Bank of England’s base rate. It is calculated as the base rate minus 1%; the rate is currently 4.25%. Interest will not be applied on early payments or payments made in error (such as paying £2,500 instead of £250).
If the VAT has already been paid to HMRC, the repayment interest is calculated from the later date of either when the VAT was paid or the payment deadline for the period.
If the VAT has not been paid to HMRC, the repayment interest is calculated from the day after the later date of either the payment deadline or when the VAT was submitted.
HMRC will only pay repayment interest if there are no outstanding VAT returns. Because of this, the interest will only be paid from the date that all outstanding VAT returns are received.
The end date for the interest will be when HMRC repays the VAT, or it is set off against a different VAT return. It can also be set off against other types of tax you may owe.
If You Cannot Pay
If you are aware that you will not be able to pay your VAT in full by a deadline, call HMRC’s Payment Support Service for guidance. They have a specific line relating to VAT payments. One option they may propose is a payment plan. You can find out what you will be asked during the set up process, or if you can set up a payment plan online, here. Setting up a payment plan could lead to penalties being reduced.
HMRC offer a flexible plan known as a Time to Pay arrangement which will cover any penalties and interest that has been applied. If this arrangement is put in place before a penalty deadline, the penalties will not be applied. However, if you do not adhere to the conditions of the arrangement and it is cancelled, the penalties will be applied. You can find out more about Time to Pay here.
If you require our services for VAT, or have any further questions regarding your accounts, please do not hesitate to contact us.
Last year, the government announced several significant changes to student loan plans. You may have noticed that your own loan deductions have changed since April 2023, or that a new plan will be implemented for this year’s students. In this blog we discuss how these updates will affect you.
Current Student Loan Schemes
Currently, there are four student loan repayment schemes. The scheme you pay through is dependent on criteria such as the country where you are based and when you started your studies. The current schemes are:
Plan 1 – Applies to all students, UK-wide, whose loans were taken before September 2012.
Plan 2 – Applies to English and Welsh borrowers from September 2012.
Plan 4 – Student Award Agency Scotland Loans
PGL – Postgraduate loans for England and Wales (PGL can also be called Plan 3)
You will only make repayments when your rate of pay passes the annual threshold. This, and the rate of deduction, is dependent on your loan scheme. The thresholds applied from April 2023 are in the table below:
Previous Annual Threshold
Annual Threshold from April 2023
Rate of Deduction
A new student loan scheme called Plan 5 will be introduced for English individuals taking student loans from 1st August 2023, in place of Plan 2. The deduction rate shall remain at 9% of pay, but the threshold shall fall to £25,000 per year. This works out to £2083 per month, or £480 per week. This threshold shall remain until April 2028, after which it shall increase in line with the retail price index. This scheme will also increase the repayment period so that loans will be cleared after 40 years, rather than the usual 30.
Students on Plan 5 will not be expected to make payments until April 2026 at the earliest. This includes students who leave their courses early. The scheme will only apply to English borrowers as Welsh students shall remain on Plan 2.
If you were paid a salary of £26,000, you would only need to repay the 9% on the £1000 exceeding the threshold. This equates to £90 per year. If your salary was £30,000, you would be paying £450 per year.
By using this rule of £90 to pay per £1000 over the threshold you will be able to predict the contributions you are due to pay per year.
How are Student Loans Paid?
If you are employed, repayments are taken from your salary by your employer, much like tax and National Insurance. The amount deducted per pay period will be displayed on your payslips.
If you are employed but also complete a tax return you must include the total amount paid during the tax year. This figure will be reflected on a P60.
If you are self-employed the amount you owe will be calculated and included on your Self Assessment, and you will pay the amount at the same time as your tax. The figure can either be calculated before submission by your accountant, or by HMRC once it is submitted.
If you are self-employed and in need of advice, or if you are unsure if you need to complete a Self Assessment, please review the information on our page.
How to Apply for Student Loans
HMRC offer a step-by-step guide on applying for student loans. It will allow you to check if you are eligible and how large your loan can be. It also gives advice on reapplying during your study (which must be done each year of your course) and what happens with payments once you leave education. This guide can be found here.
“Will my student loan go on my credit file?” – No, it doesn’t. This means that taking out student loans will not affect your ability to apply for a mortgage, for example.
“Is there interest on my loan?” – Yes, for Plan 5 loans the interest rate will be set at the rate of inflation for the current year.
“Does how much I owe on my loan affect how much I pay?” – No, as the amount you pay is solely related to your earnings. The remaining balance is not a factor.
“Can I make additional payments towards the loan?” – Yes. Additional payments can be made at any time during the repayment period; however, these payments cannot be refunded. You can find more information from HMRC here.
“Will I need to make repayments if I move abroad?” – Yes, you must still pay 9% on all earnings exceeding the currency equivalent of £25,000.
“When will I start repaying my student loan?” – If you are earning over the annual threshold, repayments will start the April after you leave university, but Plan 5 repayments will only start from April 2026.
“Are student loan contributions calculated before or after tax?” – Before tax. They are calculated the same way as National Insurance contributions.
“Will student loan repayments affect my pension contributions?” – The student loan repayment will be deducted before the pension contribution is calculated.
If you are usure of how your loan will affect your pay, please do not hesitate to contact us.
On 23rd September 2022, Chancellor of the Exchequer, Kwasi Kwarteng, announced a new growth plan.
This blog will provide a breakdown of the changes announced by the Chancellor and how they will impact you and your business.
The basic rate of income tax is set to receive its first cut in 15 years, reducing from 20% to 19%. This means that less tax will be applied to your non-dividend and non-saving income. This cut had been previously pledged by Rishi Sunak in the Spring but has been brought forward from 2024 to 6th April 2023. The government are currently estimating the average basic rate tax payers will save £130 per year.
When the growth plan was first announced, the decision was been made to scrap the 45% Additional Rate, which would have seen those earning more than £150,000 per annum being charged at the current Higher Rate of 40% from April 2023. This has since been reviewed and, on 3rd October, a U-turn on the removal was announced; the 45% rate will now stay in place.
The 20% rate will stay in place for Gift Aid until April 2027.
The rate of corporation tax was initially expected to rise for companies with profits over £250,000 from 19% to 25% from April 2023. This increase has now been scrapped, meaning all companies will be paying at the 19% rate. The government hopes that this will encourage business owners to invest more into their companies, further improving and diversifying the UK economy.
At the beginning of the current tax year, National Insurance rates saw a 1.25% increase with the introduction of the Health & Social Care Levy. This aimed to increase funding for the worst affected sectors of the COVID-19 pandemic. It has now been announced that the levy will be reversed from 6th November 2022, and the National insurance rate will return to 12%. Plans to introduce the levy as a separate tax in the next tax year have also been scrapped.
This change will be reflected by a blended National Insurance rate on Self Assessments upon submission to ensure that the correct contribution is made.
This change will reduce the National Insurance bills of companies, giving a potential for further investments.
Dividend tax rates will also fall by 1.25% in the next tax year following the removal of the Health & Social Care Levy.
Annual Investment Allowance
The Annual Investment Allowance (AIA) available to claim is set to permanently be £1,000,000. Plans had previously been put in place to reduce this to the previous amount of £200,000 in March 2023. AIA allows you claim 100% tax relief on assets up to the set amount. By having this as the higher amount, businesses will be able to claim more relief, reducing their tax.
Significant cuts to Stamp Duty have been announced, and all have come into effect as of midnight on 23rd September. Stamp duty is a form of tax applied when documents are recognized, most commonly through the purchase of houses.
The Nil Rate Band has doubled, increasing from £125,000 to £250,000, allowing more people to buy homes without paying any stamp duty. It is expected to save the average buyer £2500.
First-time home buyers will not have to pay stamp duty up to £425,000 and can claim relief on properties up to £625,000.
Universal Credit Claimants who earn less than 15 hours per week at the National Living Wage will be required to meet with a Work Coach to help increase their earnings. Their benefits could be reduced if these meetings are ignored. Extra support will be offered to jobseekers over 50.
New legislation will be implemented to decrease planning and building times for new roads and energy infrastructure.
Changes in regulations on private investments are set to allow more funding from pension funds. This is expected to boost economic growth and see a particular increase in science and technology investment.
Alcohol duty will be frozen for another year and is expected to be reviewed and modernised.
It is expected that in the coming weeks, like with all changes in government, further plans will be announced, tackling issues like the reduction of childcare costs and the housing supply, as well as a review on digital infrastructure.
If you have any concerns regarding these changes and how they could impact you and your business, do not hesitate to contact us. You can find our contact information here.
As the new tax year begins, many changes will be made to reflect the current economic climate of the United Kingdom. One such change that shall come into effect from the 6th of April 2022 is a 1.25% increase in the Income Tax rates applied to dividends.
What are Dividends?
Dividends are the payments made out to the shareholders of a company, such as directors and investors. The dividends will come from the remaining value after the Corporation Tax that is due is taken from the total profit for the period. Because of this, the total dividends issued must not exceed the company’s profits from the current, or previous, periods.
The amount that each shareholder will be paid is dependent on the number of shares in the company that they hold. The dividends they receive will be proportional to their shares.
For dividends to be paid, a directors’ meeting must be held to the payment to be declared, even if the company only has one director, and a dividend voucher must be completed. The dividend voucher will include the date, the company name, the shareholder’s name, and the amount of dividend they will be paid. Dividends are usually paid quarterly but can also be paid in other installments such as annually or bi-annually.
Many companies will choose to pay their directors through a mix of both salary and dividends. This is because National Insurance contributions are not deducted from dividends; they are more tax efficient.
The New Income Tax Rates
The rise in Income Tax is being introduced as a part of a government scheme to increase funding for the health and social care sector, after it was hit hard by the pandemic over the last two years. Please view the table below to see how your tax rate will be impacted by the increase:
Dividend Tax Rate
(If no other income)
0 – 12,570
12,571 – 50,270
50,271 – 150,000
The £2,000 dividends allowance introduced in April 2018 will still be available, meaning that any dividends within that amount will not be subjected to any tax deductions.
The government have predicted that the average loss that will be suffered because of the increase will be around £335 for those affected but has stated more than 50% of shareholders may not even need to pay any Income Tax on their dividends as they fall within the personal allowance or dividend allowance thresholds.
If you are interested in learning about the other changes brought in with the new tax year, please refer to our previous blog.
If you require assistance or any further information about how your dividends may be affected, please do not hesitate to contact us.
With the new tax year comes several changes brought forward by HMRC. Here is a short guide to help you navigate the updates that may affect you and your business from April 2022.
Reduced VAT is Ending
The reduced VAT rate of 12.5% will be increasing back to its pre-COVID rate of 20%. The reduced rate was initially introduced in July 2020 at 5%, rising to 12.5% in October 2021, to help businesses within the hospitality sector to help with their finances after the drastic impact of the Coronavirus pandemic on their trade. This return follows the timeline set in the Spring 2021 budget.
The changes to penalties and interest rules which were due to come in place from April 2022 has now been delayed to January 2023
Making Tax Digital
Making Tax Digital (MTD) will apply to all VAT-registered businesses from 1st April 2022. This means that, for any VAT periods starting on or after this date, VAT registered businesses must keep all of their VAT records digitally and submit VAT returns using software that is MTD accordant.
Changes to National Insurance
National Insurance (NI) is going to increase by 1.25% from 1st April 2022. Those receiving a State Pension will also receive a levy of 1.25%. This increase in tax will be in place until 31st March 2023 and has been put in place to help contribute to increased health and social care costs incurred over the pandemic.
New PAYE Thresholds
From year 2022-2023 to tax year 2025-2026, the personal allowance will be £12,570 per year
In England, Wales, and Northern Ireland the basic tax rate of 20% will be applied to annual earnings above the threshold, up to £37,700 a year. The higher tax rate will be 40% on annual earnings between £37,701and £150,000, with the additional tax rate of 45% will be applied to earnings above this.
In Scotland, their starter tax rate of 19% applies to earnings above the threshold and up to £2,162, the basic rate of 20% applies to annual earnings between £2,163 and £13,118, and the intermediate rate of 21% applies to annual earnings between £13,119 to £31,092. Scotland’s higher rate of 41% applies to annual earnings between £31,093 and £150,000, and the top rate applied to earning above this is 46%.
Increase on Statutory payments
Statutory maternity pay (SMP), Statutory paternity pay (SSP), Statutory parental pay (SPP), Statutory adoption pay (SAP) and bereavement pay will change on April 2022. All will see the weekly rate of statutory pay increase from £151.97 to £156.66 per week.
From 6th April 2022, the rate of statutory sick pay (SSP) will also increase from £96.35 to £99.35 per week.
Any employee who earns more than (or equal to) the lower earnings limit, that will increase to £123 on the same date, is entitled to statutory pay.
Please do not hesitate to contact us regarding any of the above changes and how they may impact your business
On 28th October, the UK Autumn Budget 2021 was announced by Chancellor Rishi Sunak, detailing the current state of our economy and measures that will be taken to improve it in the wake of the Coronavirus pandemic and its continued impact on the country.
The economy has been forecast to return to its pre-Covid level by 2022, with the country’s annual growth to rebound to between 6% and 6.5% over the next year. Here is a breakdown of the measures being taken to ensure these milestones are hit.
Improvements for Wages and Universal Credit
Since February 2020, the UK has seen a growth in wages of 3.4%. This figure is likely to increase as the predicted peak of unemployment for 2022 has now fallen from 12% to 5.2%, with the International Monetary Fund (IMF) projecting that the UK’s annual employment rate to continue to be below countries like France and Canada.
The National Living Wage will increase starting next April for each age bracket. For those 23 and older, the minimum will increase from £8.91 to £9.50 an hour. The National Minimum Wage for under 18s will be £4.81, for 18–20-year-olds it will be £6.83, and for 21–22-year-olds it will be £9.18. The Apprentice Rate is also set to rise to £4.81 an hour.
The Universal Credit taper rate has been cut by 8%. The taper rate is the amount deducted per pound earned, and it has been reduced from 63p to 55p. This means that those who are working whilst on Universal Credit will be earning more.
Changes to Taxation
Deadlines for Capital Gains Tax (CGT) returns has been extended from 30 to 60 days. The deadline extension has been implemented with immediate effect, meaning that disposals of residential property in the UK completed on or after 27th October 2021 will have the extended deadline.
From 6th April 2022 changes to the rate of income tax applied to dividend income will be applied across the UK. The rate will increase by 1.25%. This means that the dividend ordinary rate will be 8.75%, the upper rate will be 33.75%, and both the additional rate and trust rate will be set at 39.35%. These changes will help to fund the previously announced health and social care settlement.
National Insurance Contributions (NICs) are also changing refer to our previous blog here.
Eligible businesses in the retail, hospitality, and leisure sectors will receive a temporary business rates relief of 50% to aid in their pandemic recovery in 2022-23. It is worth almost £1.7 billion and will be available to over 90% of businesses within the listed sectors.
Plans for a rise in fuel duties have been cancelled due to the sharp increase in fuel costs, with prices being at their highest in eight years.
Flights taking place within UK nations will see a 50% cut in the Air Passenger Duty (APD) rate, whilst flights taking place over distances greater than 5500 miles from London will see a greater charge and be classed in a new APD band called “ultra-long-haul”. The introduction of this new band is a part of the government’s environmental objectives.
A 4% levy is to be introduced for residential property developers with an annual profit of over £25 million from April 2022. The money from this tax will be used to fund housing safety improvements, such as the removal of unsafe cladding.
In addition to the £8 billion already planned for the NHS to provide care that has been delayed due to Coronavirus, a further £5.9 billion investment shall be made to tackle the non-emergency backlog and to update their technology.
£11.5 billion will be invested into the construction of 180,000 homes through the Affordable Homes Program, with two of this being for homes outside of London. A further £1.8 billion will be used for improving brownfield sites to be used as land for housing. These are a part of a multi-year housing settlement costing nearly £24 billion.
Over the next 5 years the government will be investing £5.7 billion into the integration and modernization of UK transport, with the aim of creating a similar travel infrastructure to that of London.
If you have any further queries about the Autumn 2021 Budget, do not hesitate to contact our team, we are more than happy to answer any questions or concerns
Cryptocurrency is a digital asset that can be used to pay for things. Its value is determined by the supply and demand of its users. It is not based on any intrinsic value and can be transferred, stored, and traded electronically.
Do you pay tax on cryptocurrency in the UK?
The answer depends on if you own the cryptocurrency or if you own them via a business. If you own them personally you may have to pay capital gains tax. If you trade crypto as a business, you will be subject to income tax rules. Generally, if a transaction involves the disposal of crypto assets, it triggers taxes.
Capital Gains Tax on Cryptocurrency
If you own your cryptocurrency personally, you may have to pay capital gains tax. Capital gains are computed as the difference between the price of your cryptocurrency and the amount you sold it for. They are also known as CGT.
There is an exception to paying CGT, you only have to pay CGT if you go over your annual allowance which currently stands at £12,300 for the 2021-2022 tax year.
For UK residents, the capital gains tax on cryptocurrency transactions is taxed at 10% for the basic rate (up to £37500), up to a maximum of 20%.
Income Tax on Cryptocurrency
If you trade crypto as a business, you will be subject to income tax rules, especially if a transaction involves the disposal of crypto assets. A disposal is a process involving the removal of crypto assets.
It can be done in various ways such as selling the crypto assets for money, exchanging crypto assets for a different type, using them to pay for good or services or gifting them to another person
Ways to minimise the tax you pay on cryptocurrency
If you exceed your tax-free limit, there are several things you could consider helping minimise the tax due on your cryptocurrency gains such as utilising losses or transferring ownership to a spouse.
Utilise losses – If the overall gain exceeds the annual allowance, then it might be wise to sell some of your crypto assets to reduce the tax bill. Generally, if the total gain exceeds the annual allowance, then it should be sold at a loss.
Transfer to Spouse or Civil Partner– Currently, assets can be transferred between spouses without triggering CGT. This means if you transfer to your wife, husband, or civil partner both of your CGT allowances are used.
Reporting Cryptocurrency Gains to HMRC
You should report to HMRC after the end of the tax year. You may need to register for self-assessment with HMRC if you do not currently have a UTR number. This can be done through the HMRC website. The UK tax year runs from 6th April to 5th April the following year. Electronic returns need to be filed on 31 January by midnight and paper returns are due by 31 October at midnight.
If you need any help or advice with cryptocurrency tax, please get in contact with us and we will be happy to help.