With the deadline for submitting a UK tax return just days away (Wednesday 31st January), some people who made massive gains in the rise of Bitcoin’s value may be unaware that they owe tax.
In a press release, Ed Molyneux, CEO and co-founder of award-winning cloud accounting software provider FreeAgent outlines that:
“HMRC sees Bitcoin profits being subject to Capital Gains Tax, but there does not appear to be a definitive answer on the issue yet, which could cause confusion among investors”
Self-assessment deadline 2018: Bitcoin investors beware
Nearly 11 million people were expected to file a self-assessment tax return before 31st January’s deadline. Yet last year 14% of taxpayers (or 840,000 people) missed this deadline and incurred a fine of £100 from HMRC.
However, this year’s self-assessment deadline is significant for a number of reasons. Those submitting self-assessment tax returns need to be aware of:
- Bitcoin: In April 2017, a single Bitcoin was worth a little over £746 but by mid December it was worth over £14,000. However, HMRC’s guidelines on the cryptocurrency may cause confusion among non-traditional investors looking to include the information in their self-assessment tax return.
- Gig economy: With the average Airbnb host making at least £3,000 per year, these individuals need to assess whether they meet HMRC’s “badges of trade”, they will need to register for self-assessment as soon as possible, or else receive a £100 fine from HMRC, and risk further penalties for not paying the tax they owe.
- Paying HMRC: While submitting a self-assessment tax return is free, due to new EU rules (the Payment Services Directive 2 – PSD2), HMRC will no longer accept credit card payments for late payers.
- The decision was made in December 2017, despite 454,000 personal credit cards being used for tax payments last year.
- Taxpayers can also no longer pay their tax bills at the Post Office.
Ed Molyneux said: “Every year, hundreds of thousands of people across the UK end up incurring fines for failing to file their tax return on time. Yet, in many cases, these penalties are entirely avoidable provided that people check the tax implications of what they have earned throughout the year and start their self-assessment in advance of the filing deadline.
“Airbnb rents and other earnings from the gig economy can often trip people up when it comes to knowing whether they have to file a tax return. But this year, an added complication could come from Bitcoin, as some investors in the cryptocurrency will have taken advantage of its high valuation this year to cash out their investments.
“It’s likely that HMRC see Bitcoin profits being subject to Capital Gains Tax, but there does not appear to be a definitive answer on the issue yet, which could cause confusion among investors. I would therefore urge anyone who has made money from Bitcoin to contact HMRC directly to check whether they need to include the information in their self-assessment tax return or in a different capacity.”
Some top tips if you’re a late filer
Last year a total of 768,905 returns were received by HMRC on deadline day and if you’re likely to be a last minute filer, Emily Coltman FCA and Chief Accountant to FreeAgent has five top tips for you.
- Be pragmatic if you’re going to file late
At this late stage, it’s important to be realistic when it comes to filing your tax return. If you haven’t yet registered your business with HMRC – or if you’re still waiting to receive either your activation PIN or your Unique Tax Reference (UTR) from them – it’s quite unlikely that you were able to do this and get the information you needed before the January 31st deadline.
But that’s not the end of the world. The worst that can happen in the first instance is that HMRC will fine you £100 and you’ll also be charged interest if you pay your tax late – but that doesn’t prevent you submitting your tax return after the deadline has passed.
Just don’t get lulled into a false sense of security. HMRC starts increasing the penalties for late filing if you leave it too long, and there are also additional charges and interest to pay when it comes to actually paying your tax bill late. Dawdle too long and those penalties will quickly start to add up!
- Be prepared for some hard work
If you’ve got a great accounting system in place – or a good bookkeeping method that you use to stay on top of your financial information throughout the year – then all the information about your business income and expenses should be easily accessible. You just need to find it and include it in your tax return alongside any other income you’ve earned throughout the year (such as dividends on shares you own, interest on savings accounts etc).
However, if you store expense receipts in a shoe-box and only check your finances once every few months, you’re going to find it less easy. You’ll have to meticulously go through all of those expenses, and check all of your bank payments and transactions, to get the information you need; which could take many hours.
Put in the hard work and don’t cut corners! If you rush your tax return you’re more likely to make mistakes or miss important information out which could mean that either: a) you miss out on claiming tax relief on an expense you’ve incurred, or; b) you get your figures completely wrong and risk being penalized by HMRC for submitting an incorrect tax return.
- Follow the rules
Tax is very complicated, so make sure you follow all of the rules to the letter when completing your tax return. For example, be very careful when you’re adding up your income and expenses for your sole trader or partnership accounts because, unless you use the cash basis to prepare your accounts, you have to count income depending on when you did the work, not when the customer paid you.
Also make sure that you’re fully up to speed with rules surrounding business expenses, especially with regard to travel, accommodation, food & drink, entertaining, clothing and the business use of your home. You can do this by checking your proposed expenses against the info on HMRC’s website, or use another reputable source of expenses information for sole traders, partnerships and limited companies.
- Check the forms – and submit them correctly
When submitting your tax return online after midnight on 31st January 2018, HMRC will issue an automatic fine of £100 – and this applies if you’re even a day late and even if you don’t actually owe any tax!
There are a number of ways you can do this, which include:
- Fill in the self-assessment forms on HMRC’s website and submit them there once they’re complete
- Use alternative technology. For example, if you’re a sole trader or the director of a Limited Company, you can complete and file your self-assessment from directly within FreeAgent, without needing to use HMRC’s website. Alternatively, you can use other specialist software such as TaxCalc to fill and file your return.
- Hire an accountant to complete and file your return for you.
Make sure you complete every section correctly and leave plenty of time to double-check everything before you submit it. Remember that a single, simple mistake or omission (such as not ticking the confirmation box at the end) could result in your tax return being rejected by HMRC and you being fined.
- Don’t forget to pay
Once you’ve submitted your tax return, don’t get lulled into a false sense of security. There’s still one important step left, which is to actually PAY your tax!
HMRC will charge you interest if you do this late and will also impose penalties on late payment, so it’s important to pay your tax as soon as you can if you want to avoid getting hit with a hefty – and growing – fine!
About FreeAgent:
FreeAgent provides the UK’s market-leading online accounting system specifically designed to meet the needs of contractors, freelancers, micro businesses and the accountants they work with. More than 50,000 customers currently use the award-winning system to manage and maintain their business accounts, track time, log their expenses, create and send invoices and forecast their tax bills.
FreeAgent is a former winner at the British Accountancy Awards and AccountingWEB Software Satisfaction Awards. The company is a FCSA partner and has been listed twice on the Deloitte Fast 50, as well as being named ‘one to watch’ in the Tech Track 100.
Since November 2016, FreeAgent Holdings plc (AIM: FREE), has been a quoted company listed on AIM, a market operated by the London Stock Exchange.
