UK Crypto Income Tax Guide 2025

What is Crypto Income?

Cryptocurrency income in the UK refers to crypto received as payment for work, goods, services, or rewards. HMRC treats crypto income separately from capital gains - income is taxed when received, while capital gains apply when you dispose of crypto assets.

Types of Crypto Income

• Employment income: Salary or wages paid in cryptocurrency
• Trading income: Buying and selling crypto as a business/trade
• Self-employment income: Payments for freelance services in crypto
• Miscellaneous income: Airdrops, referral bonuses, one-off payments
• Mining income: Rewards from mining activities
• Staking income: May be income or capital gains (HMRC unclear)
• Learn-to-earn: Coinbase Earn and similar programs
• Play-to-earn: Gaming rewards
• Airdrops: Free token distributions
• Referral bonuses: Exchange referral rewards

HMRC Treatment of Crypto Income

HMRC Cryptoassets Manual

HMRC's Cryptoassets Manual (CRYPTO20000+) provides detailed guidance on crypto taxation:

"If an individual carries on a trade of buying and selling cryptoassets, any profits or losses will be treated as trading income and subject to Income Tax and National Insurance contributions."

Key Principles

• Income vs capital gains: Crypto received as payment = income; crypto appreciation = capital gains
• Market value rule: Income taxed at GBP value when received
• Trading vs investing: Frequent, organized activity = trading income; buy-and-hold = capital gains
• Employment vs self-employment: Different tax treatment and forms

Trading Income vs Miscellaneous Income

Trading Income (Business Activity)

HMRC considers crypto activities as trading income if you:

• Trade crypto frequently and systematically
• Have a profit-seeking motive
• Engage in organized, business-like activity
• Use sophisticated trading strategies
• Spend significant time on crypto activities
• Advertise crypto services or products

Tax treatment:

• Subject to Income Tax (20%, 40%, 45%)
• Subject to National Insurance Class 2 and Class 4
• Report on SA103 (Self-Employment supplementary pages)
• Can deduct allowable business expenses

Miscellaneous Income (Casual/One-Off)

If crypto income is casual, infrequent, or one-off:

• Occasional freelance payment in crypto
• One-off airdrop
• Referral bonuses
• Small learn-to-earn rewards

Tax treatment:

• Subject to Income Tax (20%, 40%, 45%)
• Not subject to National Insurance
• Report on SA100 (main tax return) under "Other income"
• Cannot deduct expenses (generally)

Badge of Trade Test

HMRC uses the "badges of trade" to determine if an activity is trading:

1. Profit-seeking motive: Are you trying to make profit?
2. Frequency: How often do you transact?
3. Nature of asset: Is it income-generating or investment?
4. Existence of similar trading: Do you have similar businesses?
5. Changes to asset: Do you modify crypto before selling?
6. Way of acquisition: How did you acquire the crypto?
7. Method of disposal: How do you sell?
8. Source of finance: How is activity funded?
9. Interval of time: How long between acquisition and disposal?

When is Crypto Income Taxable?

Crypto income is taxable in the tax year it is received. The UK tax year runs from 6 April to 5 April the following year.

Receipt Date

How to Calculate Income Value

Market Value in GBP

HMRC requires you to use the market value in GBP at the time of receipt. Methods:

• Exchange rate: Use a reputable UK exchange (Coinbase, Kraken, Binance)
• Closing price: End-of-day price
• Average price: Daily average if exact time unknown
• Consistent method: Use the same method throughout

Example Calculation

Scenario: You complete a web design project and receive 1 ETH on 15 March 2025. ETH is trading at £2,400 at the time.

• Amount received: 1 ETH
• Market value: £2,400 per ETH
• Taxable income: £2,400
• Cost basis: £2,400 (for future CGT calculation)

Income Tax Rates and Bands

2024/25 Income Tax Rates (England, Wales, Northern Ireland)

Scotland Income Tax Rates (2024/25)

National Insurance Contributions

Class 2 NIC (Self-Employed)

If your trading income exceeds £6,725/year:

• Rate: £3.45 per week (flat rate)
• Annual: ~£179

Class 4 NIC (Self-Employed Profits)

Class 1 NIC (Employment)

If you receive crypto as an employee:

• Employee: 12% on earnings £12,570-£50,270, then 2% above
• Employer: 13.8% on earnings above £9,100

Hard Forks and Airdrops

HMRC Guidance on Airdrops

HMRC's Cryptoassets Manual (CRYPTO21250) states:

"Where tokens are received from an airdrop and the recipient has not done anything in return, there is no income tax charge. However, if the recipient has provided some kind of service in return, this is likely to be taxable as income."

Taxable vs Non-Taxable Airdrops

Non-Taxable (No Income Tax)

• Pure airdrops: Tokens given freely with no action required
• Holder rewards: Tokens distributed just for holding another token
• Marketing distributions: Free tokens to promote a project

Note: While not subject to income tax, they may be subject to capital gains tax when disposed of.

Taxable (Income Tax)

• Bounty airdrops: Tokens for completing tasks (social media, content creation)
• Service airdrops: Tokens in exchange for services
• Forked coins: New coins from hard forks where you provided services

Example: Uniswap Airdrop

The Uniswap (UNI) airdrop in 2020 gave 400 UNI to early users who had used the protocol.

• Type: Pure airdrop (no service required)
• Income tax: None (per HMRC guidance)
• Cost basis: £0
• When sold: Entire proceeds are capital gains

Crypto Salary and Employment Income

Receiving Salary in Crypto

If your employer pays you in cryptocurrency:

• Treated as employment income (not capital gains)
• Subject to Income Tax via PAYE
• Subject to Class 1 National Insurance
• Employer must value in GBP and deduct taxes
• Report on P60/P45 as regular employment income

Employer Obligations

Employers paying in crypto must:

• Calculate GBP value at payment date
• Operate PAYE (Pay As You Earn)
• Deduct Income Tax and NIC
• Report on Real Time Information (RTI) to HMRC
• Provide P60 at year-end

Example: Monthly Crypto Salary

Scenario: Your employer pays you £3,000/month gross salary, 50% in GBP and 50% in Bitcoin.

• Gross monthly: £3,000 (£1,500 cash + £1,500 BTC)
• Annual gross: £36,000
• Tax treatment: Same as if paid entirely in GBP
• PAYE deducted: From cash portion (employer's responsibility)
• Cost basis: £1,500 for each month's BTC received

Self-Employment and Freelance Income

Receiving Crypto Payments

If you're self-employed and receive crypto as payment:

• Trading income (or miscellaneous income if occasional)
• Report on SA103 supplementary pages
• Subject to Income Tax and NIC
• Can deduct allowable expenses

Allowable Business Expenses

If running a crypto business, you can deduct:

• Computer equipment and hardware
• Software and subscriptions (including crypto tax software)
• Office expenses and utilities (if home office)
• Internet and phone costs
• Professional fees (accountant, tax advisor)
• Transaction fees and exchange fees
• Marketing and advertising

Example: Freelance Developer

You're a freelance web developer earning £45,000 in crypto payments in 2024/25.

• Gross income: £45,000
• Allowable expenses: £8,000
• Net profit: £37,000
• Income tax:
  • Personal allowance: £12,570 @ 0% = £0
  • Basic rate: £24,430 @ 20% = £4,886
• Class 2 NIC: £179
• Class 4 NIC: (£37,000 - £12,570) × 9% = £2,199
• Total tax/NIC: £7,264

Learn-to-Earn Programs

Coinbase Earn and Similar

Learn-to-earn programs pay users to watch educational content:

• Coinbase Earn: Watch videos, complete quizzes
• Binance Learn & Earn: Similar structure
• CMC Earn: CoinMarketCap educational rewards

Tax Treatment

HMRC would likely consider this miscellaneous income:

• You perform a task (watch videos) = income
• Taxable at market value when received
• Report as "Other income" on SA100
• No NIC (not trading or employment)

Example: Coinbase Earn

You complete 6 Coinbase Earn lessons in 2024/25:

Report £23.50 as miscellaneous income on Self Assessment.

Play-to-Earn Gaming

What is Play-to-Earn?

Play-to-earn games reward players with crypto:

• Axie Infinity: Earn SLP and AXS
• Decentraland: Earn MANA
• The Sandbox: Earn SAND
• Gods Unchained: Earn GODS and NFT cards

Tax Treatment

Casual Players

• Miscellaneous income when rewards are claimed
• Subject to Income Tax (20%, 40%, or 45%)
• No NIC
• Report on SA100 as "Other taxable income"

Professional/Business Players

• Trading income if playing frequently and systematically
• Subject to Income Tax and NIC
• Report on SA103
• Can deduct expenses (game assets, equipment, etc.)

Example: Axie Infinity

Casual player: You play occasionally and earn £300 in SLP tokens over the year.

• Income: £300
• Tax (basic rate): £300 × 20% = £60
• Report: Miscellaneous income on SA100

Professional player: You play daily as a business and earn £25,000.

• Trading income: £25,000
• Expenses: £3,000 (Axies, computer, etc.)
• Net profit: £22,000
• Subject to: Income Tax + Class 2/4 NIC

Referral Bonuses and Promotional Rewards

Exchange Referral Programs

Many exchanges offer crypto for referring new users:

• Coinbase referrals
• Binance referral commissions
• Kraken referral bonuses

Tax Treatment

• Miscellaneous income (unless you run a referral business)
• Taxable at market value when received
• No NIC for casual referrals
• Report as "Other income"

How to Report on Self Assessment

SA103 (Self-Employment Supplementary Pages)

Use SA103 if you have trading/self-employment income:

1. Complete Business details section
2. Enter turnover (gross crypto income in GBP)
3. Enter allowable expenses
4. Calculate net profit
5. Net profit flows to SA100 main return

SA106 (Foreign Supplementary Pages)

Use SA106 if you have employment income from foreign employers paying in crypto.

SA100 (Main Tax Return)

For miscellaneous income (airdrops, learn-to-earn, referrals):

1. Go to "Any other information" section
2. Enter description: "Cryptocurrency income"
3. Enter total GBP value
4. Alternatively, use the "Other taxable income" box

Cost Basis After Receiving Income

When you receive crypto as income, your cost basis = market value at receipt. This prevents double taxation.

Example: Complete Tax Cycle

Step 1: Receive Income

• 1 March 2025: Receive 2 ETH as payment, ETH = £2,500
• Income: 2 × £2,500 = £5,000 (taxed as income)
• Cost basis: £5,000 (or £2,500/ETH)

Step 2: Sell Later

• 1 July 2025: Sell 2 ETH when ETH = £2,800
• Proceeds: 2 × £2,800 = £5,600
• Cost basis: £5,000
• Capital gain: £5,600 - £5,000 = £600
• CGT (if no allowance used): £600 × 20% = £120

Example Scenarios with Calculations

Scenario 1: Crypto Salary Employee

You work for a company that pays £40,000 annual salary, 30% in Bitcoin.

• Cash salary: £28,000
• BTC salary: £12,000
• Total gross: £40,000
• Tax calculation:
  • Personal allowance: £12,570 @ 0%
  • Basic rate: £27,430 @ 20% = £5,486
• Class 1 NIC: (£40,000 - £12,570) × 12% = £3,292
• Total deductions: £8,778
• Net income: £31,222

Scenario 2: Freelance Graphic Designer

Self-employed designer earning £35,000 in crypto payments.

• Gross income: £35,000
• Expenses: £7,000
• Net profit: £28,000
• Income tax:
  • Personal allowance: £12,570 @ 0%
  • Basic rate: £15,430 @ 20% = £3,086
• Class 2 NIC: £179
• Class 4 NIC: (£28,000 - £12,570) × 9% = £1,389
• Total tax/NIC: £4,654

Scenario 3: Mixed Crypto Income

You have various crypto income sources in 2024/25:

Record Keeping Requirements

What HMRC Requires

You must keep records for at least 5 years after the 31 January submission deadline (so 6 years from end of tax year).

What to Track

• Date and time of each receipt
• Type of income (employment, trading, miscellaneous)
• Amount in crypto
• GBP value at receipt
• Source (employer, client, exchange, protocol)
• Evidence: Invoices, contracts, wallet records
• Exchange rate used

Documentation

• Invoices and contracts
• Wallet transaction history
• Exchange statements and CSV exports
• Screenshots of airdrops, earn programs
• Price data sources (CoinGecko, CoinMarketCap)
• P60/P45 if employment income

Tools

• Koinly - Excellent UK tax reports
• CoinTracker - Good for income tracking
• CryptoTaxCalculator - HMRC-compliant reports
• TokenTax - Great for complex income

Common Mistakes to Avoid

1. Treating all crypto gains as capital gains: Income is taxed differently
2. Not reporting small amounts: All income must be reported
3. Using wrong exchange rate: Use rate at time of receipt
4. Forgetting cost basis: Income value = cost basis
5. Not registering for Self Assessment: Required if you have untaxed income
6. Missing the deadline: 31 January for online returns
7. Ignoring NIC: Trading income requires NIC payments
8. Wrong form: Use SA103 for trading, not just SA100
9. Not keeping records: HMRC can request evidence
10. Assuming airdrops are all non-taxable: Bounty airdrops are income

FAQs

Is all crypto income taxable in the UK?

Yes, if you receive crypto as payment, reward, or compensation, it's generally taxable as income (unless it's a pure airdrop with no service provided).

Do I pay income tax or capital gains tax on crypto?

Income tax when you receive crypto as income. Capital gains tax when you dispose of crypto you already own. Both can apply to the same crypto.

Are airdrops taxable in the UK?

Pure airdrops (no service) = no income tax, but subject to CGT when sold. Bounty airdrops (tasks required) = income tax applies.

Do I need to register for Self Assessment?

Yes, if you have untaxed income (freelance, trading, miscellaneous) over £1,000 per year, or if HMRC asks you to.

Can I deduct crypto losses from income?

No. Crypto losses are capital losses, which can only offset capital gains. Income is separate.

What if my crypto income is less than £1,000?

You may qualify for the Trading Allowance (£1,000) or Property Allowance. If under £1,000 and you elect to use the allowance, you don't need to report. But once over, you must register for Self Assessment.

Do I pay National Insurance on airdrops?

No. Airdrops and miscellaneous income are not subject to NIC, only Income Tax.

How do I value crypto if there's no GBP market?

Use a reasonable method: USD price converted to GBP, or use HMRC's Cryptoassets Manual guidance on valuation.

What about staking rewards?

HMRC hasn't provided specific guidance. Conservative approach: treat as miscellaneous income. Some argue it's capital gains. Consult a crypto tax advisor.

Can employers pay staff entirely in crypto?

Yes, but they must operate PAYE and deduct tax/NIC based on GBP value. Employees must be able to cover their tax liabilities.

Tools & Resources

Crypto Tax Software

• Koinly - Best for UK, HMRC-compliant reports
• CryptoTaxCalculator - Great UK support
• CoinTracker - Good income tracking
• TokenTax - Complex income scenarios
• ZenLedger - Affordable UK option

HMRC Resources

• HMRC Cryptoassets Manual
• Self Assessment Tax Returns
• Income Tax Rates
• National Insurance Contributions

Final Thoughts

UK crypto income taxation is complex, with distinctions between trading income, employment income, and miscellaneous income. The key is understanding when income tax applies (receipt) vs when CGT applies (disposal).

Key takeaways:

• Income tax on receipt at market value
• CGT on disposal for any gains above cost basis
• Cost basis = income value (no double tax)
• Trading income attracts NIC; miscellaneous doesn't
• Pure airdrops are not income; bounty airdrops are

Most UK crypto earners will benefit from using crypto tax software like Koinly to automate tracking and generate HMRC-compliant reports. For significant income or complex situations (trading as a business), consult a UK crypto tax specialist.