13 Bitcoin Accounting Hacks That Will Totally Change The Way You Report Financials
At Pearl Lemon Accountants, we have a wealth of knowledge and experience in the field – something that is still a novelty in the world of accounting – and offer multiple cryptocurrency tax services including bitcoin tax, tax compliance and reporting, tax preparation, wealth management, and more.
Whatever your cryptocurrency tax concerns are, our team of bitcoin accountants can help answer your questions, ensure your crypto tax issues are taken care of and help you achieve your cryptocurrency investment goals quickly.
Defining Bitcoin and Cryptocurrency
A cryptocurrency (or “crypto”) is a digital currency that may be used to purchase goods and services, but it is secured by an online ledger and powerful cryptography. The majority of activity in these unregulated currencies at the moment, however, is for profit trading, with speculators driving values to almost unbelievably stratospheric levels at times.
According to CoinMarketCap.com, a market research website, more than 15,000 different cryptocurrencies are publicly traded. Cryptocurrencies are still on the rise. On December 10th, 2021, the total value of all cryptocurrencies was around 2.3 trillion dollars, down from an all-time high of $2.9 trillion just weeks before. The overall market value of bitcoins, the most widely used digital currency, was estimated to be around $932.4 billion. Which is what we mean by stratospheric.
HMRC and Cryptocurrencies
HMRC was one of the first tax administrations in the world to issue explicit instructions on cryptocurrency taxation. In the United Kingdom, cryptocurrency is subject to either Income Tax or Capital Gains Tax, depending on the amount invested and the way in which you obtained it.
Because there is currently no Bitcoin or cryptocurrency tax in the United Kingdom. As previously stated, either Capital Gains Tax or Income Tax will apply to your cryptocurrency.
The crypto tax you’ll have to pay is determined by the transactions you make with your cryptocurrency. If you’re earning money, you’ll have to pay income tax. If it’s determined that you’ve made a capital gain, you’ll have to pay Capital Gains Tax. And in some cases it’s possible that HMRC will be of the view that you owe both.
This all means that when it comes to taxation, owning cryptocurrencies in the UK is more complex than it is in many other countries, including the US. Without a good bitcoin accountant on your side, you could run afoul of HMRC fairly easily, without even meaning to, and that’s the last thing anyone ever wants.
How Will HMRC Even Know You Own Crypto?
Cryptocurrency markets are in constant flux, so you may be wondering how HMRC would ever know what your activities in the space have been in the first place.
HMRC stated a few years ago that they were collaborating with prominent crypto exchanges to share consumer data obtained from Know Your Customer records. They’re utilizing this information to send reminder letters to crypto investors, encouraging them to report bitcoin to HMRC, and to contact investors they feel are dodging HMRC cryptocurrency taxes.
But what about your personal cryptocurrency exchange in the United Kingdom? Is Binance required to report to HMRC? What about HMRC and Coinbase? Which cryptocurrency exchanges are required to answer to HMRC?
HMRC announced in 2019 that they have contacted cryptocurrency exchanges doing business in the UK, including Coinbase, eToro, and CEX, to collect user data. So far, they’ve just mentioned these three crypto exchanges.
Before you breathe a sigh of relief, keep in mind that just because HMRC hasn’t mentioned your crypto exchange doesn’t mean they haven’t approached them. HMRC is clamping down on cryptocurrency, therefore it’s safe to presume they’ve contacted all of the big cryptocurrency exchanges operating in the UK, including Binance, Kraken, KuCoin, Gemini, CoinJar, Crypto.com, Bittrex, and Gate.io.
What Pearl Lemon Accountants Can Offer as Your Bitcoin Accountant
It’s not always easy to figure out how to pay tax on Bitcoin and other cryptocurrencies. To effectively compute the profit/gain and pay the lowest amount of tax legally possible, you’ll need the knowledge to comprehend the intricacy and unique nature of these transactions. And even if you know your crypto basics well, the complex UK tax regulations that are emerging around this still evolving form of investment can be mind-boggling (sometimes even to us at first!)
We can offer you a level of cryptocurrency accounting expertise that most accounting firms just cannot. That’s thanks, in large part, to the fact that our accounting teams have been involved in cryptocurrency themselves for years, and the knowledge and expertise they have gained is a result of that as well as of basic ongoing accountancy education.
Do I Really Have to Report Bitcoin on My Taxes?
Don’t make the mistake of believing that your activities aren’t subject to HMRC scrutiny. We’ve seen far too many firms suffer as a result of inadequate tax preparation and financial penalties in our extensive experience. Bitcoin traders and cryptocurrency firms are no exception.
Because HMRC is now actively investigating bitcoin activity, it’s more crucial than ever to maintain cryptocurrency tax compliance.
In the United Kingdom, cryptocurrency trading is totally legal – as long as you report any earnings to HMRC, which means you’ll have to pay tax on them.
However, as we explained earlier, bitcoin taxation is not always straightforward. We can help you sort out the tangle of information around the ramifications of all your crypto operations.
We can walk you through the newest legislation for buying and selling bitcoin and other cryptocurrencies, mining, arbitraging exchanges, margin trading, and exchanging your investments for fiat currency and more. And perhaps even more importantly, help you stay on the right side of HMRC!
Keeping Track of Your Cryptocurrency With a Bitcoin Accountant
Taxes aside, a bitcoin accountant can help you stay on top of your cryptocurrency in the same way we help you keep track of your fiat currency. We can also help you take advantage of every tax break you are entitled to limit the amount of tax you pay on your crypto. We can even help you keep your investments more secure, something that’s more important than ever, as organised cryptocurrency fraud and hacks increase.
How much tax do you pay on Bitcoin?
Do you pay capital gains on Bitcoin?
Yes, you do. In the UK, cryptocurrency trading is taxed, and as such, you will be subject to paying Capital Gains Tax as per HMRC regulations.
Do I need an accountant for Bitcoin?
No, you are not required to have an accountant for Bitcoin. However, it would be beneficial for you to hire one mainly because they understand Bitcoin’s tax implications and can help guide you.
If you would like more information, please book a call with our experts!
Why choose us as your Bitcoin accountant?
Finding out how much tax you need to pay on Bitcoin can be challenging, but Pearl Lemon Accountants have been dealing with cryptocurrencies for years and are very knowledgeable on the subject.
Wouldn’t it be nice to have an experienced crypto accountant in your corner?
For more information, book a call with our experts today!
What are the advantages of using a Bitcoin accountant?
The main advantage of having a bitcoin accountant is that they can help you during tax filing season. A bitcoin accountant can help find additional savings and can ensure that your tax documentation is accurate and filed on time.
If you would like more information, please book a call with our experts!