Her Majesty’s Revenue and Customs (HMRC) has released a new update to its guidance on cryptocurrency tax reporting. A notable change is the introduction of a separate section defining taxation guidelines for cryptocurrencies acquired as staking rewards.
HMRC put coins received as staking rewards in the same category as those obtained from mining, detailing how businesses and individuals should report such revenue.
Although the new guidelines do not really offer separate reporting rules for both coin generation activities, their separation leaves room for HMRC to create distinct rules for them in the future.
HMRC states that it is “only in exceptional circumstances” that individuals would exchange coins from staking rewards to the point that it becomes a taxable event. A number of factors must be considered including risk, degree of activity, commercialisation, and organisation.
However, if the staking activity does not amount to a trade, the individual should report it as a miscellaneous income using the “pound sterling value (at the time of receipt) as reference.”
On the other hand, if they choose to hold the coins to resell for a higher price in the future, then they might be liable to a capital gain tax anytime they dispose of the asset.
HMRC explained that the same factors (risk, degree of activity, commercialisation, and organisation) must be considered by businesses regarding when staking rewards amount to a taxable trade.
While businesses are most likely to see their conversion of staking rewards as being a ‘taxable event,’ HMRC notes that it might not be so in all cases. Hence, when a business determines that the transaction isn’t a taxable event, they are only to report the earnings as miscellaneous income for taxation purposes.
“If the miner keeps the awarded assets, they may have to pay Capital Gains Tax (CGT) or Corporation Tax on Chargeable Gains (CTCG) when they later dispose of them,” the guideline says.
The updated HMRC guidelines are part of a new internal HMRC manual released by the tax authority, ensuring that one manual now contains crypto-asset tax guidance for businesses and individuals.