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Ethereum is one of the most popular types of blockchain software.
Ethereum became famous as the first software to allow computer programmers to create “smart contracts” – basically pieces of code that automate certain kinds of payments if certain pre-conditions are met, and without the need of a bank or another intermediary. For this, Ethereum uses a special cryptocurrency called ether.
Ethereum’s “ether” coins are not created by a central bank, but instead created during a process called “mining” (basically running a piece of software that helps keep the network functioning), done on personal or specialised computers. Another way of acquiring ethers is by buying them via a cryptocurrency exchange.
In the UK, ethers, like all other cryptocurrencies, is considered a taxable asset.
If you earn ether through mining it on your computer, then it counts as self-employment income, and you need to pay Income Tax on its value calculated in pounds. You might also have to pay Class 2 and Class 4 National Insurance. On the other hand, you can claim your mining equipment (computers and electric bill) as a self-employment expense.
If you sell ether for a profit, you may also need to pay Capital Gains Tax on this profit.
You can claim this loss against other income (for mined ether) or capital gains (for sold ether), either this tax year or the next (this is also called “carrying a loss forward“).
To claim a loss or pay tax on your ether earnings, you need to file a Self Assessment tax return.