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Tax deductions for crypto traders

  • 3 min read
  • Last updated 27 Mar 2024

As a crypto trader, HMRC allows you tax deductions for your crypto expenses from your total earned income. So what deductions can you make as a crypto trader? Let’s get into it!

First of all… what’s a crypto trader?

A crypto trader buys and sells crypto in volumes that amount to what HMRC considers as financial trade. In other words, a lot of trades. 

If you are a crypto trader, HMRC will recognise you like every other crypto business. If you make more than a certain amount, usually £1,000, you’ll be liable to pay not only Capital Gains Tax but also:

Do I need to register as a VAT business?

If your business earns more than £90,000 a year from the 2024/25 tax year, then you will need to register for VAT. Otherwise, it’s optional until you start earning that much.

Can I be a crypto trader and a crypto investor?

Yes, of course, you can! You can invest in crypto separately to trading it. It’s recommended that you make it a point to keep your trades and investments in different crypto wallets and platforms so each can be taxed correctly. 

Crypto investors are investors because the volume of transactions and short-term profit they make is usually much lower than those who trade crypto. 

Crypto traders make high volume, repetitive and daily transactions while investors are not so consistent.

HMRC may consider you a trader if you:

  • Have a big capital investment
  • Trading daily and repetitively
  • Are following a trading strategy
  • Operating like a business (or if you’ve already registered your business)
  • Focus on short-term profit making (unlikes investors who are more focused on long-term goals)

If you’re not sure what category you come under, we recommend getting professional help. 

So I’m a crypto trader, now what?

You’re officially considered a business owner or a sole trader. This means that you are running your own business and are self-employed. And guess what self-employed folks have to do at the end of every tax year? Yep, you guessed it, a tax return! 

Now, along with keeping all the information you have about every transaction you’re making, you also need to keep a track of all your income and crypto expenses. This along with the other records you should keep which are listed in this guide.

Why do you need to keep all these records? Because you’ll need to report it all to HMRC. (Of course 🙄.)

What can I expense?

The first question every business owner wants the answer to. Or maybe the second. Either way, we don’t blame you, because expenses matter. When it comes to crypto, however, there is some grey area with HMRC. As crypto regulations are always changing, it’s best to stay on top of it all. 

You can expense anything that is wholly, exclusively and necessarily required for you to trade crypto.

Costs for trading crypto may include:

  • Hardware and software costs
  • Trading fees
  • Subscription costs

Costs that other general businesses can expense:

  • Marketing costs
  • Equipment costs
  • Website costs
  • Accounting costs

While the list on the right isn’t specifically for crypto businesses, if you can make an argument for why they should be expensed then HMRC will consider it. 

Be aware that HMRC can dispute your tax return and if they argue that your expenses aren’t deductible then you could be liable for penalties and fines. 

Are there specific crypto expenses for traders?

We’re so glad you asked. Yes, actually, there is. HMRC have outlined some deductible costs on their website that they accept. These include: 

  • The consideration (in £) originally paid for the cryptoasset
  • Transaction fees paid for having the transaction included on the distributed ledger
  • Advertising for a purchaser or a vendor
  • Professional costs to draw up a contract for the acquisition or disposal of the tokens
  • Costs of making a valuation to calculate gains or losses

Filing a crypto tax return?

Well, listen up. We teamed up with Koinly to bring you a quick and easy solution: a tool to create crypto tax reports. Want to get your crypto tax report generated and tax return filed all in one? Look no further. Up to 1000 transactions totally free!

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