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Client has decided to play with cryptocurrencies

Client mentioned in passing that he has been investing in crypto, several types and regular trans

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So I have a self-employed client who happened to mention in passing that he has been investing in cryptocurrencies.  Apparently he uses several different apps and regularly dabbles and buys/sells different cryptocurrencies for fun.  He says he hasn't made a profit.  The amounts I imagine are fairly small (He earns about £25k so doesn't have loads of money), I imagine in the hundreds. 

I do not yet know what apps or currencies he has used.  I think I know the answer to this question, but am I really going to have to go and analyse every transaction and match each sale to relevant purchases etc to ensure he has made less than the CGT threshold??  Is there any other way around it?  Can I just look at the overall picture and if it is obviously under the threshold we don't need to report so don't need to do the detailed calculations??

(Previously had a different client who has been dabbling in stock trading, also said he hadn't made much but ended up making a CGT taxable gain after accounting for losses and annual exemption.  He however has significantly more cash.)

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By CB123
30th Nov 2021 15:53

In your position I would want to take a look at all the transactions in the year. A client's belief that they made no profit is (rarely) accurate when calculating tax.

Does the client really understand how to calculate the profit/loss on disposal, taking into account pooled coins etc.? Come to think of it, do they even understand they may have made a capital disposal without realising - for instance if they purchased goods using cryptocurrency?

Have they earned any income from staking/wrapping, which they may not even be considering as income?

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Replying to CB123:
Giraffe
By Luke
30th Nov 2021 16:00

Yes, I agree I would have to look at the detailed transactions. No idea if they have any income from staking/wrapping, to be honest not fully sure I know what that is. Some more investigations to be done.

A typical case where a client does something but has no idea of the tax consequences, and will no doubt moan about extra cost for extra work involved. Grrrr.

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By Paul Crowley
30th Nov 2021 16:11

Consider whether this is trading income first

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By Wanderer
30th Nov 2021 16:29

So! Before you do too much bat it back to the client and get them to sign up & import all the transactions into this:-
https://koinly.io/crypto-taxes-uk/

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Replying to Wanderer:
Giraffe
By Luke
30th Nov 2021 17:03

Very useful link, thank you.

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Replying to Wanderer:
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By Carl London
30th Nov 2021 22:53

I had a client try to use this but the reports seemed to not give the right gains, due to the way it accounted for transfers between wallets/exchanges (I.e treating non-disposals as disposals).
There were some videos on how to manually fix these issues, but with hundreds of transactions it didn't seem practical. Would be interested if others with multiple wallets and exchanges have managed to make it work OK!

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By ireallyshouldknowthisbut
30th Nov 2021 16:49

if you can persuade them to "cash out" by 5th April you can treat as a "black box" and collapse all the intervening transactions and only look at "cash in" and "cash out" (taking into account the drugs etc they have bought which seems to be the only use for these currencies other than speculation), other than that then you are going to end up looking at CGT arising on every transfer which is huge PITA with the 30 day rules as they tend to muck about going in/out of the same currency and use 101 different ones you have never heard of. NB you might be able to collapse 100's of intervening transactions if your client has gone Bitcoin : something else, something else, back to bitcoin, so long as they lot has come back.

I had a computer geek client write a script to work it out a few years ago as he had something like 50k transactions in the year. He just cashes out now, and repurchases different currencies. it was not trading in my opinion as he spent only a few minutes on it a week, nearly all the trading was auto.

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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
30th Nov 2021 17:06

Interesting concept ... "it was not trading in my opinion as he spent only a few minutes on it a week, nearly all the trading was auto."
So all those using software to automate trades in stocks aren't really trading (or have I missed something obvious)?

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Replying to Hugo Fair:
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By carnmores
30th Nov 2021 17:18

quite LOL

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Replying to Hugo Fair:
By ireallyshouldknowthisbut
30th Nov 2021 19:02

Hugo Fair wrote:

Interesting concept ... "it was not trading in my opinion as he spent only a few minutes on it a week, nearly all the trading was auto."
So all those using software to automate trades in stocks aren't really trading (or have I missed something obvious)?

you may scoff but you don't know the circumstances. Volume of transactions is clearly an indicator of trading, but not the only one. We went quite carefully through all the badges of trade, and it was not trading in my opinion. We actually looked at several examples of day trading vs investing. He was hardly sat there scrunched over the screen agonising about every purchase and sale, he just wrote a script for a bit of fun in a few hours and let if run. It was a lot of micro transactions. The guy is a serious high level geek, with a busy geek job, this was really just a casual intellectual exercise. Would have been a doddle to do if it was trading of course.

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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
30th Nov 2021 21:41

Apologies if you thought I was scoffing ... I'm no use with emoticons anyway, but it was meant to be a hybrid question/joke (with a look of bewilderment).

My serious point was that I was surprised that the software-driven auto-trading factor was relevant to the "badges of trade". I don't disbelieve you, but it seems incongruous when much of professional trading is based entirely on milli-second timings driven by software that makes all the actual buying/selling decisions.

It would be interesting to know what weighting is given to the various factors by HMRC when they are determining trade vs non-trade ... which is an area explored on other thread (with regard to the taxation of gains only 'created' by the owner when purchasing something with bitcoins that happen to have increase in value).

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Replying to Hugo Fair:
By Duggimon
01st Dec 2021 09:36

Hugo Fair wrote:

It would be interesting to know what weighting is given to the various factors by HMRC when they are determining trade vs non-trade ... which is an area explored on other thread (with regard to the taxation of gains only 'created' by the owner when purchasing something with bitcoins that happen to have increase in value).

HMRC have taken a view on the issue which is broadly "We expect pretty much everyone trading in crypto to be doing so as capital investment". I'm happy to take that at face value and accept that whomever I come across whose trading in crypto is doing so on a capital basis unless I really can't justify it, i.e. someone doing nothing but working on their portfolio full time.

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By SXGuy
30th Nov 2021 17:28

There are plenty of crypto gains calculators online which allow you to either import a feed or a csv of the transaction history and it will tell you what, if any the gains were.

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Giraffe
By Luke
01st Dec 2021 06:50

Thanks all. I am reading all replies with interest.

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Giraffe
By Luke
01st Dec 2021 06:50

Thanks all. I am reading all replies with interest.

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Stepurhan
By stepurhan
01st Dec 2021 08:42

My understanding is that you cannot be a trader in cryptocurrency under current rules. They are always subject to capital gains tax, regardless of the volume of trade. It is possible to have trading income from crypto, but this is from activities like mining, not just buying and selling them.

https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto20000

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Replying to stepurhan:
By Duggimon
01st Dec 2021 09:37

stepurhan wrote:

My understanding is that you cannot be a trader in cryptocurrency under current rules. They are always subject to capital gains tax, regardless of the volume of trade. It is possible to have trading income from crypto, but this is from activities like mining, not just buying and selling them.

https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto20000

Per that link: "Only in exceptional circumstances would HMRC expect individuals to buy and sell exchange tokens with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself."

"Exceptional circumstances" doesn't mean never.

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Replying to Duggimon:
Stepurhan
By stepurhan
01st Dec 2021 13:23

Duggimon wrote:

"Exceptional circumstances" doesn't mean never.

True enough. It does imply a fairly extreme level of trading though. Daily trading at least I would think.

For what it's worth, I think HMRC are moving towards it more easily falling into being a self-employed trade in a similar fashion to other market trading activities. A few consultations have been released in the last year about "regulating" the sector better. I cannot help thinking that a more regulated market would make it easier for HMRC to track activity and seek tax.

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Melchett
By thestudyman
02nd Dec 2021 15:20

Assuming this is not a trader, any good exchange or app should provide contract notes which show the relevant purchase and sales.

Maybe others can confirm but I believe you would need to follow matching rules similar to shares.

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