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.
When you pay tax on your Ethereum earnings:
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.
What to do if you made a loss:
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.
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