UK "mining" tax

I was taking a look at the gov website on tax in a futile attempt to understand the implications for mining better but find it somewhat lacking in detail.
As far as I understand so far, you are liable to income tax if you win a coin and this is based on the coin value on the date you were awarded it. Then you may also be liable for capital gains tax when you sell it if it has increased in value enough.

This makes me think mining/farming in the UK is very risky indeed. If you won early coins at high value and they drop in value significantly before you sell some to cover your tax liability, couldn’t your tax bill be higher than the value of the coins at that future date?

Maybe I’m missing some crucial detail here. I would certainly be worried if I won any coins in the first week or so. (I have 0 incidentally!).

I wonder if the PB miners have factored this into their ROI, they probably should sell half of what is awarded on the day its awarded or could be in for a nasty awakening.

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I don’t live in the UK so I don’t read their laws. At least in the US there are a few things but they can all be easily over come.

I’ve been suspecting for awhile that countries will start going after miners and pools as it makes it easy to dodge taxes in general. In the US they are trying to pass a few laws that would make exchanges like Coinbase regulated more like a stock broker.

It sounds like if they do this in the UK it would be easy to skirt by setting up an entity in another country and that would be the mining entity. I would be interested in some follow ups to this as countries usually follow each other with things like this.

This is interesting and raises many questions…
some thoughts come to mind.

  1. How will HMRC know that you have mined any coin? besides you, no one else knows who it is behind your wallet id.
  2. Does HMRC expect you to declare all payments received via crypto? at what amount does a crypto payment become interesting for HMRC
  3. Even if you do declare coins mined/received, how will HMRC verify that you have provided accurate time and price?
  4. Consider setting up a company and then billing all the effort, costs, material, training (e.g. learning ubuntu adminstration) and any other other costs (your time is a cost too) to the company that is receiving the mined crypto.

Perhaps an accountant could provide some comment if there is one in the forum.

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On point 1 I think the issue is when you use the coin, this is when it will be visible. If you exchange it to fiat then it appears in your bank and could be unexplained wealth, or even if you bought a tesla with it :wink: Maybe if you didn’t use it for 7 years…

I think they’ll start regulating mining pools. That’s the only way they could know for sure if you’re bringing in coin.

Other than that if they can tie an address to you they would know. I assume with chia that coins are tracked so if coins are sent to address A and moved to address B it could be tracked.

I agree with your point 4 that setting up business entity is the smartest move. I’ll be doing that sometime this year so I can write off all the equipment I got for chia mining :grin:

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Actually the UK have a very fair Crypto tax system, have a look at this video https://youtu.be/rqyhrPe6hiM

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Good find that’s a useful video.
It also confirms my concern, you are liable for income tax on the coin value on the day it is awarded. So you need to set aside cash for the tax based on that in case the coin is worth less by the time you do the tax return. Whether or not you have disposed of the coin.
Scary stuff when the asset value is so volatile…

For trading its simple as if the value goes down you won’t make a gain.

They won’t until you move your coins to an exchange then HMRC might know. I guess it will also depend on the exchange’s jurisdiction. See HMRC seeks data from Crypto Exchanges to combat tax evaders

I also wonder how this works with pools. Is the asset yours as soon as it is allocated in the pool or only when you transfer it to your wallet?
In the former case that would mean you need the pool to provide a transactions log ideally including the value of xch with each transaction, otherwise it will be a real headache to sort out afterwards.

They won’t but at some point you will have to exchange it and it most likely that will be with an exchange who will have your details and report to hmrc.

They sure do and they will get vary interested at over £10k imho.

If they suspect anything they can just look at the blockchain… unlikely to happen for a few grand, but if you make millions…

Make sure you register for VAT and claim back 20% of your purchase costs, then right off pc equipment in a year… and don’t forget any self respecting mining operation must have a promotional lambo… :wink:

…Or register your company in the bahamas…

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The way I see it the whole idea of crypto currency is to bypass the government and tax regulations. If you decide to convert your crypto into $ of a currency in that country sure they have an argument it could be taxed.

But what if you never convert it into cash? what if it sits there. how much tax do you owe? what if the day you mine it is is $10000 and you get taxed 30% and then by the time you sell it value has dropped 50% then what? do you get tax credits for losses?

If you start allowing yourself to be taxed on crypto gains its no longer crypto its stocks imo.

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some more useful links

Don’t forget that if you are a UK tax resident then HMRC are usually quite hot on taxing on your worldwide income. (source: self employed, UK tax resident, lived and worked in various countries). No, it doesn’t matter if you spend longer than 183 days outside of the UK per year.

the old trick of spending time out of the UK has been dead for a long time…

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You can always get proactive with half your winnings, assist others without credit cards acquire goods online in return for cash, sort of like a private paybuddy service, order goods (HDDs, Gfx Cards, watches) online and sell them for cash, etc.etc…lol

Don’t get me wrong but haven’t we paid taxes up to the neck in purchase of equipment, uncountable working hours, the associated bills, even then when you incur the loss the big guy is not willing to pitch in but ohh no, God-forbid you turn a profit, they want a cut of that? And for doing what? You took the risk, yours was the enterprise, yours was the labour, tomorrow another mafia comes and asks for a cut of your winnings, would you happily give it to them?(Listen to what Andrew Ryan says about the ‘entitlement to the sweat of your brow’ in the introduction of the first Bioshock). If they want to tax it they should put a mechanism in place to report operational loss and claim rebate and support for the cost of production. They should go after wallstreet later, they should first hold accountable the crooks in the parliament.

If risk is 100% mine so is the reward, I ain’t forkin over a cut to nobody, it leaves me with less to do real charity!

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Whether or not you agree with taxation wasn’t my point.
I’d like to stay on the right side of the law and mining is taxed as income the moment you get a coin.

In a pool, do you own the coin immediately or only when transferred to your wallet?
If it is taxable as soon as mined in a pool then for me mining is dead, its just far too risky to run up a large tax bill when you might never sell the coin at a reasonable amount to cover it.

I wonder if the chia team/company have paid tax on their pre-mine…

I am not sure you understood BioShock

I agree. It’s so volatile that it’s not fair to pay tax based on price on certain days (the day you earned the token or the day you calculate the taxes).

I think it would be fair if either you

  • Take average price of the coin during the whole financial year and pay tax over that
  • Pay tax in the same token

I don’t know if there are tools for calculating average value of coins but shouldn’t be too hard I guess.

The latter is not technologically feasible currently but if you have 10 XCH and you pay 2 XCH tax over it and keep 8 XCH, it wouldn’t matter if the price goes up or down afterwards. You couldn’t possibly overpay tax in that situation.

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why not, with a value of nothing, the tax bill is nothing… the cap gains will be a bit different when they sell anything…

i would take the value when you receive it. that’s when you get “paid”. (not tax advice)

it’s no different to painting someone’s house, getting the money and before you settle your tax owed, buying some chia. Us self employed people deal with this all the time as we get a big tax bill at year end and have to find the money. if you are used to being taxed as you earn it is totally different. welcome to my world.

so as a solution…
say you earn 2 xch, why not just sell 1 or half or whatever you need to, to pay/put aside your tax liability and enjoy the ride with the rest?