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Mo Tax Expert
Mo Tax Expert, Accountant
Category: Tax
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Experience:  Accounting and Tax Expert
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I am planning to start my own business within the

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Hi, I am planning to start my own business within the Cryptocurrency space. I will not have any employees; it will just be me, at least to start with. I would like some advice from you in regards ***** ***** to go about this. For example: - Should I set up an actual company or do tax returns on my name? How about NIC? - Cryptocurrency tax rules, business expense rules, what to track/report in tax returns As you can imagine, many many questions. I look forward to hearing from you.
JA: Have you talked to a tax professional about this?
Customer: No that's what I am looking for help with
JA: Is there anything else the Accountant should know before I connect you? Rest assured that they'll be able to help you.
Customer: that's it for now, thanks

Hi and welcome to JustAnswer. I’m Mo Barrie, Qualified Accountant and Tax Expert. I’m currently reviewing your question and will respond to you shortly.

Thank you for your patience.

Customer: replied 11 days ago.
Hi thanks!

Kindly give me an accurate assessment of the type of activities. Are you going to be a day-to-day trader or an investor. as the tax implication differ.

Even though a Limited company structure can be a tax-efficient way to operate. The issue you have is that most parts prefer personal accounts with the exception of platforms such as Binance. Hence as you are only just starting out you could start as a sole trader and make the transition as you continue to grow.

Customer: replied 11 days ago.
it will be Algorithmic Trading daily. Of course I will have to put some money in to start with and was planning to top up over the first year depending on success rates. I was planning to start on Kraken as I am most familiar with it, I believe it would also offer non-personal accounts.
I agree that I was thinking of starting as sole trader and transition into a Limited company over time
Customer: replied 11 days ago.
For me, the most important part is not having any employment gaps, continuing to contribute to NIC, and of course being on the correct side of tax reporting

Filing a personal tax return would solve the NIC issue as you would be expected to pay class 2 and class 4 NIC (if earnings are over £9,881).

Below is a general guide:

  • Buying and selling crypto: If, come tax day, you’ve sold your crypto for more than you bought it, you’ll probably have to pay capital gains tax on the profit. If you lost money through trading, such losses could minimize your capital gains tax bill. Note that swapping cryptocurrencies will also trigger a capital gains taxable event, as it involves selling your crypto to other investors or liquidity pools. In “exceptional circumstances,” such as if you’re trading huge amounts of crypto, HMRC will consider you a trader and ask you to pay income tax on trading instead of capital gains taxes.
  • When you’re paid in crypto: No matter which cryptocurrency you’re paid in, or who pays you, you’ll have to pay income tax and national insurance contributions.
  • Mining and validating: If your mining operation is minor – say, just one computer that mines bitcoin in your spare time – HMRC will treat you as a hobbyist who should pay income tax on your gains. If it looks like you’re running a mining business, count your mining income toward your trading profits.
  • Airdrops: Airdrops are not taxed as income, so long as you receive them without doing anything in return, and so long as you don’t receive them as part of a trade or from mining. If you’ve earned airdropped tokens as a reward for doing something, you’ll have to report it as income. When an individual sells their tokens, that will likely trigger a capital gains taxable event.
  • Crypto you inherit: Under U.K. tax law, HMRC treats cryptocurrencies as property.
  • DeFi protocols: DeFi taxes get a little complicated, and each protocol is different. If you lend or stake tokens, the HMRC might treat it as a capital gains disposal – even though you still control the token. That’s unless you know the return when you started staking or lending – then it’s still revenue. If the DeFi protocol pays you, it’s income. Various other factors, like whether your returns are paid as a one-off (probably capital gains) or recur (income), and whether the loan is long term or short term, affect how DeFi is treated under U.K. tax law.

Customer: replied 11 days ago.
I see, so I would likely fall under "trader". Even though I am planning to start with only £2000, eventually the goal is to grow that by trading, and reinvesting some of the profit and taking out some to "pay" myself. Is that a correct understanding?

Indeed. As you are a sole trader, the business is you so you could draw funds from the business as and when required.

Make sure you have evidence of all transactions and file a personal tax return declaring your earnings and expenditure once a year.

You would be fine.

I wish you all the luck on your business journey.

Customer: replied 11 days ago.
This was super helpful, thank you so much!!

You are very welcome.

Wishing you all the best.

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