A surge of crypto mining prompts Wales’ largest independent accountancy firm to warn investors about tax implications that could hit them hard.
The recent volatility in crypto prices may have dampened enthusiasm for some speculative crypto investors. However, there is another type of investor that has developed in the private investor market and that is the crypto miner.
Alun Evans a partner at Bevan Buckland LLP, who is based in Haverfordwest, says: “The rise of home-working and the fact that cryptocurrencies are never far from the headlines is fuelling a growing interest in crypto mining and we have seen a marked growth in this activity. People must take on board the tax implication of this activity.
One important point to consider is that VAT cannot be reclaimed on the capital assets required to set up a crypto mining business. So, if you invest £40,000 in computer equipment, no VAT can be reclaimed on this. This is because crypto mining is not treated as a trade by HMRC. Cryptocurrency received for mining activities is outside the scope for VAT, as mining cryptocurrency does not constitute an economic activity for VAT purposes. As with other currency exchanges, the sale of a cryptocurrency will either not be a supply at all or will constitute an exempt supply. On that basis, it’s not possible to recover any input VAT for crypto mining activities.
If you are a crypto miner, bear in mind that your actions are very much on the taxman’s radar. Dabblers, heavy investors and businesses with a cryptocurrency interest should be mindful of all the tax implications that can apply to those mining cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin and meme coins.
Alun adds: “We have some clients who made seven-figure profits on crypto in the past year or two and most of these have suspected they have a tax issue but have not factored tax into the gains. Remember that HMRC can make information requests from crypto exchanges and disclosure by UK based exchanges have already been made. Bear in mind too that HMRC may decide to treat you as a business rather than as an individual based on things like the number and frequency of transactions, the risk involved and the amount of time you devote to the activity.
“HMRC has published guidance on what private investors and business investors should be aware of and investors need to keep detailed records, so they can account for their activities if they need to. It is wise to get some professional guidance on the use of cryptocurrency, how it can fit into your investment activities and how you can avoid the potential pitfalls from a tax point of view.”
Bevan Buckland LLP has offices throughout South Wales, and it is the largest independent accountancy firm in Wales providing accountancy services, tax compliance and advisory services and other strategic advice for small to medium-sized businesses. Headquartered in Swansea, the practice has offices in Carmarthen, Cowbridge, Haverfordwest, Pembroke and St David’s.