Cryptocurrencies are digital currencies that are not directly regulated by any government. Instead, they function with the help of online decentralized ledgers. This gives them a greater level of freedom, security, and profitability, in general, compared to fiat currencies. This has led many crypto investors to believe that cryptocurrencies are free from tax liabilities, but this is far from the case.

Any transaction using a cryptocurrency becomes taxable as per HMRC rules if the benefits and value cross the exemption threshold and fall into the taxable range, just like gold, silver, or any other investment. Read on for more on what you should know about cryptocurrency and taxation in the UK. Note this is general information and is not intended in any way to be financial advice – it’s always a good idea to seek professional advice relating to your own individual situation.

What kind of taxes apply to cryptocurrency?

In general, income tax and capital gains tax are the two types of taxes that are applicable to cryptocurrency. However, there may also be exceptions in certain cases. For tax considerations, cryptocurrency will be treated as any other property or asset holding a certain value. If you receive cryptocurrency from any source, it becomes your income and the rules of income tax as per HMRC rules will apply to it.

Additionally, if you use your crypto assets to yield any benefits later, you will also become liable to pay capital gains tax. These taxes are applicable only if the value or benefit of the cryptocurrencies, along with other assets, will be in the taxable range. Assessing whether your crypto investments are taxable, and calculating how much you need to pay as tax may be a confusing and tedious job when you need to consider crypto assets along with your other assets. Therefore, it can be a good idea to seek advice from an accounting firm that offers specific crypto-asset services such as Hodge Bakshi.

When do you need to pay income tax on cryptocurrency?

Your cryptocurrency activities can make you liable to pay income tax when you receive cryptocurrency as a new income or dividend, or for free in some instances. You may get paid in cryptocurrency from certain sources for your services. You may also earn cryptocurrency through crypto mining or as interest through DeFi (Decentralized Finance) investments.

Referral bonuses, airdrops, and similar that you receive from organizations that want to promote a new cryptocurrency can also get added to your income. All such cryptocurrency you receive, along with your general income, makes you liable to pay income tax if the total value during the tax year falls in the taxable range.

When do you need to pay capital gains tax on cryptocurrency?

When you use cryptocurrency for transactions that involve a capital gain, you become liable to pay capital gains tax, if the value falls in the taxable range as defined by HMRC. This typically occurs when selling cryptocurrency in exchange for fiat currency, swapping one cryptocurrency with another (like paying Bitcoin to receive Ethereum), using cryptocurrency to purchase commodities, or gifting cryptocurrency to someone else.

How is the location determined for taxation?

Cryptocurrency is digital money that has no physical existence. The value of cryptocurrency resides within a blockchain network online which constitutes a decentralized ledger operated by many crypto holders spread around the globe. So, how is the location of cryptocurrency determined for the purposes of taxation? The HMRC considers cryptocurrency to be present in the UK if its owner resides in the UK. This applies to both UK residents and domiciled non-UK individuals.

How does taxation apply to trading with cryptocurrency?

Cryptocurrency trading is not considered an investment. Instead, it comes in the ambit of business and so the taxation rules of business apply to cryptocurrency trading. However, many different factors need to be considered for an accurate assessment in such cases.

Is cryptocurrency liable for inheritance tax?

Cryptocurrencies and other forms of crypto-assets such as NFTs are treated as property. Therefore, any tax rule that applies to the property will also apply to cryptocurrency and if one individual inherits crypto assets from another, inheritance tax rules apply to the inherited crypto assets if it is beyond the inheritance tax threshold. Tax will be collected from the assets transferred and the beneficiaries will not have to pay it separately. However, they will be liable to pay taxes if they make revenue from the inherited assets. As with general inheritance rules, if the assets go to charity, inheritance tax does not apply.

Though cryptocurrencies as such have no specific taxation rules in the UK, general tax rules apply, as they are considered assets like any other. Additionally, these days, cryptocurrency is not the only crypto asset. Many other variants, such as NFT (Non-fungible token) which also works based on blockchain technology, are also taxable. As tax assessments can be confusing, it is generally a good idea to seek advice from a professional tax consultant to know where you stand and whether the crypto assets you hold are taxable.

Jason Obrien

Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.

Individuals and businesses have to prepare during the annual tax filing period, whether with the help of a tax expert or by themselves. However, many may not be fully aware of how they can avail of tax-reduction solutions such as tax credits and deductions.

Before the year ends, it pays to review your business expenses and financial statement for proper tax planning. Read this article to find out about the tax-reduction opportunities that your business may be missing out on.

How Businesses Can Save Tax On Tax Payments

Tax laws in most countries can be complicated. Hence, it’s best to hire tax experts like the ones from HKMP’s business accounting services or similar specialists near you. Generally speaking, there are two ways that your business can save on taxes: through tax deductions and tax credits. These two concepts work differently and impact your tax costs in distinct ways.

Business tax credits reduce the tax you owe by the dollar. For instance, if your business is eligible for USD$1,000 and your final tax liability amount is USD$4,000, your tax burden will only be USD$3,000.

On the other hand, business tax deductions reduce a taxpayer’s taxable income. They’re directly dependent on the tax bracket in which the business belongs. For example, if an entity’s tax burden is at USD$10,000 and the company belongs in the 20% bracket, the deduction is only worth USD$2,000.

Business Tax Credits And Deductions Your Business May Qualify For 

For centuries, tax collection is often used to fuel government expenses that provide better services to taxpayers. However, governments of different levels offer tax credits and deductions to stimulate more economic activities. In the US, businesses can avail of tax savings through the following:

1. Tax Deductions on Business Expenses

Most business expenses may qualify you for specific tax deductions. For instance, advertising and promotion costs are 100% deductible. In addition, some food and beverage expenses may lower your tax liabilities under this category by half, except for office event meal expenses, which are wholly deductible.

Other business expenses that may qualify for business tax deductions include:

• Insurance and permit costs
• Use of vehicles for business purposes
• Hiring contractual employees and consultants
• Depreciation costs for business assets
• Employee training
• Education expenses

Home-based business owners may also claim these deductions as long as personal and company expenses are clearly defined and accounted for. 

2. Research and Development Tax Credit

Research and development take a considerable chunk of a business’s capital expenses, including countless staffing hours. To encourage companies to make their products more globally competitive, the government offers tax credits for companies that improve products, processes, and software.

The Internal Revenue Service (IRS) lists all qualified business expenses and requirements in the Internal Revenue Code Section 41. Businesses may have to present financial records and documents to avail of this tax incentive.

3. Work Opportunity Tax Credit (WOTC)

Another federal tax credit program, the Work Opportunity Tax Credit (WOTC) is available to businesses that employ individuals from target groups such as veterans, former felons, and cash-strapped individuals. There’s no limit to the number of employees a company can hire, and any type of job arrangement, whether full-time, part-time, or on-call is eligible.

The business has to apply for and receive certification before being qualified to claim. Both the employee and employer may qualify for business and personal tax credits under WOTC.

4. Fuel Tax Credit

This program allows particular businesses to save on their tax liabilities if they’re engaged in eco-friendly practices in transporting goods and services. Examples include using electric vehicles and alternative fuel for farming, commercial fishing, and other business purposes. Some businesses that may operate pieces of industrial machinery may qualify for this tax-reducing program. The Department of Energy (DoE) spearheads the Fuel Tax Credit program.

5. Investment Tax Credits

Big-ticket investments for new business property such as vehicles, buildings, pieces of industrial equipment, or major office renovations may qualify your business for a tax credit. This government tax benefit allows companies to get a rebate from these high costs.

Tax rebates are also applicable in some solar panel installations for buildings, also called Solar Tax Credit. Investments in economically-challenged communities may also qualify companies to avail of the New Markets Tax Credit. This program allows entities to claim five percent of the total investment amount for the first three years, increasing to six percent from the fourth to seventh year.

6. Health Insurance Tax Credits

There are two ways that businesses can save on a health insurance tax credit. Also known as a premium tax credit, companies may claim discounts every month through reduced insurance premiums or a federal income tax refund. This tax credit is only available if businesses purchase a federal or state-backed insurance plan. By getting a Health Savings Account, a highly deductible health plan, employers and employees can reduce tax costs and medical fees.

7. Childcare Facilities And Services Expenses Tax Credit

Businesses that pay for their staff’s childcare expenses are eligible for this tax-saving program that offers a 25% refund on child care expenses, alongside a 10% reimbursement for childcare resource and referral costs, granting that the state accredits these facilities. Availing of this tax incentive can reduce your business liabilities by up to USD$150,000 annually.

8. Disabled Access Tax Credit

The Americans with Disabilities Act (ADA) requires businesses with at least 15 workers to make their premises more accommodating to differently-abled employees. Doing this will undoubtedly entail costs, but your company can apply for tax relief. This program allows small organizations with total earnings not exceeding USD$1,000,000 to apply for a 50% rebate for their ADA-related expenditures with an annual cap of USD$5,000.

9. Carryforward Tax Deductions

Sometimes, businesses may have deductions, losses, and credits that they can’t fully claim during the current year. This happens when your business tax claim exceeds the amount set by the IRS and the state. In these cases, companies may file these refunds over the next year. Such tax provision is otherwise known as a carryforward.

With the help of your accountant, take note of these tax-deductible claims so you can claim them the following year. You’ll also need a tax expert to qualify which tax credits and deductions are allowed under the carryforward provision in your state.

Final Thoughts

Tax filing can be a highly stressful activity, particularly for small business owners. Without knowing these tax-saving opportunities, a business that qualifies for tax credits and deductions may end up paying more than it’s supposed to. With the help of an accountant or a tax specialist to do the heavy lifting, you’ll be able to breeze through the filing process and enjoy lower tax liabilities.

Tristan D. Porter

I am Tristan who loves to ride and spend time with my jenny (horse) and my love Mark. After completing my graduation, I have been working as an accountant in a private firm in Cologne.

Accounting is essential for any business enterprise because it helps keep track of all daily transactions. It also provides the basis for preparing the final accounts of an organization. Those include income statements, balance sheets, cash flow statements, and statements of changes in equity.

That said, there are several benefits of preparing final accounts of a company. For instance, they allow business owners and managers to understand how their business is performing. Apart from that, it can help them know the liquidity position of their firm. But more importantly, it helps other individuals and groups—from shareholders and potential investors to lenders and employees—make wise decisions when dealing with a particular firm.

Though you can utilize an in-house team for accounting services, it might be more advantageous to work with an accounting company depending on your needs and circumstances. That’s where outsourcing business accounting functions come in.

What Is Business Accounting Outsourcing?

In general, outsourcing is the practice of entrusting a third-party firm with some of your key business functions. So if you’re going to outsource accounting, you’ll have to get in touch with an accounting firm. Rather than employing full-time accountants, you can hire a registered company on a seasonal basis to take on accounting tasks on your behalf.

Of course, not all service providers deliver quality solutions. You have to find a reputable firm for outsourced accounting services if you’re after excellent outcomes.

What Are The Advantages Of Outsourcing Accounting Services?

Outsourcing your accounting comes with numerous benefits. Here are just some of them:

1. Reduce Your Expenditure

Expenses are a major concern for businesses, and if you’re not careful, they can affect your profitability margins. If you want to either maintain or improve your business profitability, you have to take the necessary measures to minimize costs without compromising the quality of your products or services.

Although there are several strategies you can carry out to accomplish that, outsourcing your accounting functions is among the most effective ones. It enables you to lower your labor costs. Take note that staffing expenses entail everything from monthly salaries to allowances to health care and social security benefits. But when you partner with an outsourced accounting firm, you don’t have to pay for such yet you’ll get the same, if not better, results.

Since you can hire an accounting firm on an as-needed basis, you won’t need to employ full-time accountants. Apart from that, such companies utilize their own equipment and applications when providing services. You won’t need to acquire additional computers or tools just as you would for new in-house employees, which would also help keep your business costs down.

2. Attend To Other Core Business Activities

Business owners face several constraints. One of those is the lack of time to address all issues at hand. If that’s the case for you, consider turning to a company that provides accounting solutions.

Working with an accounting firm gives you more time to concentrate on other critical business operations. For instance, it allows you to focus on your managerial roles, thus ensuring that your company runs optimally. Aside from that, outsourcing something as time-consuming as accounting tasks enables you to monitor your employees closely and provide them with guidance, thus increasing their productivity.

3. Get Professional Advice

If you want your enterprise to thrive in the competitive world of modern business, it’d be a good idea to work with experts such as certified public accountants (CPAs). A CPA is a professional who has undergone rigorous training and has passed the required exams in order to obtain their license. In addition, many of them have been in the industry for years, so they can handle all kinds of accounting-related issues and situations with relative ease. You can be sure that they’ll get things done right on time, every time.

Accounting firms may be able to provide you with expert advice as well. For instance, they can guide you in creating budgets, maintaining your cash flow, and filing your business taxes. They can help you understand some of the complex accounting and financial terms you’ll encounter in various documents.

4. Scale Your Company More Easily

One of the biggest challenges that business enterprises face is gathering enough resources when they’re looking to expand their operations. For instance, they may not have the right equipment and sufficient human resources to create more products or provide other types of services. This can be avoided by working with an accounting firm.

Doing so means you’ll be hiring a company that can grow with you. With them, there’s no need to worry about purchasing the necessary equipment or expanding your workforce just for the sake of getting access to the accounting services your scaling business requires. Whether you’re operating a small or a large firm, such professionals would be able to meet your current and future needs.

5. Benefit From Automation Technology

Today, numerous businesses are looking for ways to streamline their operations. Streamlining has to do with simplifying certain processes. It allows an enterprise to use fewer resources and as little time as possible to produce maximum output. Automation is an innovation that makes that possible.

Business automation involves the use of tools and technologies to perform specific operations with minimum human intervention. Many accounting firms utilize automated solutions when providing their services. This helps save time, reduce errors, and helps lower the chances of their employees committing financial fraud. Their accounting software allows business reports to be generated in real time as well.

6. Meet Compliance Requirements

Today, there are countless regulations implemented for companies. These are rules and procedures laid down by the government and regulatory authorities to guide the operations of various kinds of businesses. For instance, the tax rate applicable to a sole proprietor differs from that of a partnership or corporation.

That’s why there’s a need to work with an accounting firm to ensure that you meet all business requirements. Such establishments would understand what’s happening in your industry, so they can inform you regarding new laws and regulations and help you stay compliant.

Takeaway

Outsourcing accounting functions is one of the best ways to take your business to the next level. In doing so, you won’t only save on staffing costs but also gain access to hi-tech solutions that an in-house accounting team may not be able to provide. And if you choose the right firm to partner with, you’ll have peace of mind knowing that many of your financial tasks are being handled by trustworthy professionals.

Jason Obrien

Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.

For the layman, there is always some confusion about why taxes are needed. Comparing your hard-earned income with the spending of government agencies, the thought can strike your mind that your contributions to the treasury are somewhat overestimated. However, when you give a deep thought about the payment’s purpose, it becomes clear why such a world order is mandatory.

History of Origin

In the last vicennial, many people accepted paying part of their annual income to replenish the treasury. Every county resident must understand why taxes are required and is obliged to periodically pay out a small amount for the development of education, medicine, and strengthening their defense force. History has taught us that a society is unable to function normally without a regular cash flow.

The valuable function of taxes is apparent, although not very pleasant for some residents. In the early days, at the expense of taxes, the crazy ideas to conquer the world were imagined. However, there were also positive countries in history, in which medical, education institutes were created, care for the general population was carried out, and orphanages were built.

For the normal functioning of state organizations, it needs a constant flow of funds. In addition, the more socially valuable policy is implemented, the more substantial the payment percentage of the treasury becomes. Why use the Online Income Tax Calculator when the officials can print the required amount of funds themselves? The answer to this question lies in the analogy of the comparison with the separate internal structure of the population. Let’s consider the utilities and housing sector.

Similar Payments

We will try to answer why the government needs taxes by considering an example of one multi-story building. In most cases, utility charges are paid monthly. Also, everyone is well accustomed to the need for such requirements and closely follows each receipt item. Money is paid for garbage collection, cleaning, heating supply, gardening, maintenance of the social structures, and communication in general conditions.

The absence of such payment mechanics threatens the life of apartment dwellers and also makes it hard to maintain the society premises. On the other hand, regular monthly payments allow people not to worry about such menial but necessary tasks and focus on more important things. So the government takes upon itself the primary concern of maintaining peace within the society while offering assistance to the weak and sick. The country’s external threats also make it necessary to maintain a substantial army to save its population from various opponents.

In all the countries, there are taxes, because the state can only function properly if they are available. Where do taxes go? It’s the job of the leadership (elected by a majority of votes) to distribute material resources evenly.

Statehood

In a developed country, residents understand where their taxes go. Each resident feels their effect on their everyday life by means of social needs, medicine, and education. The payment of taxes is fixed by revenue authorities. In addition, the constitution obliges everyone to pay taxes up to a specific amount annually and immediately in special cases.

The tax system works on the rules of prosecution if these requirements have been breached. Such responsibilities fall on a separate structure: the Central Board of Direct Taxes or tax office. The treasury is entirely owned by the citizens, which has entrusted its exclusive rights to the group of persons elected by the people’s mandate. While paying an obligatory amount, a citizen must look at it as payment of services provided by the government.

Currently, the modern tax system is as imperfect as it was before. There are various nuances of payment and their calculation method. The substantial amount depends on the living standard, the cost of goods and services, as well as the utility charges.

Obvious benefits of fee

The requirements for taxes and economic essence lie in the society’s development as a whole. The modernization process of older objects and structures is in full swing. Such a working mechanism should never stop because the essence of life is movement and change.

It is generally unclear why a citizen must pay taxes if he’s not receiving a dime from the state. The answer will be the same reason: thanks to conscientious residents, society exists. If people are evading this primary duty, this suggests that the supervisory authority – the tax officials – are not working well.

Whether people will not follow the legislative base – depends on every resident. The lack of participation in public life provides an image of an alienating power from the people. Nowadays, everything is in the hands of people. If they were not indifferent to the state’s fate, it would be impossible to evade responsibilities.

Change in Fees

Unfortunately, the economic model of every country is built depending on the laws of life: everything constantly changes and refuses to a standstill. This is the reason tax rates are being increased. Society is steadily developing, and every day someone needs to compensate for development. Buyers need to pay extra for everything, and, in turn, they are also required to cover the losses. The chain of the event is chaotically stretching across businesses, organizations and, as a result, finds its way into the government agencies.

The governments need to raise taxes unwantedly to equalize the cash flow balance. Such a complex process is developed by people themselves. Still, the general opinion is the same: “the state intentionally rips off the general population”. Misunderstanding arises from narrow thinking. If you consider the issue more generally, it becomes entirely clear why the government levies taxes.

Domestic Policy

To find out why and how much the government needs to collect taxes, it is necessary to consider what are the primary expenses of a government.

• Community and housing services (partially compensated from the budget).
• For proper functioning of the courts and government agencies: consumer protection, state employment services, social committees.
• Medical institutions: hospitals, clinics, nursing homes, sanatoriums.
• Educational institutions: schools, colleges, universities, research centers, academies.
• Cultural institutions: monuments, museums.
• Defence departments: police, secret services, army, prosecutor’s office.

There is also a more elaborate list of government expenses that are covered by taxes. Such things include helping in the event of natural disasters, assistance to neighboring countries, and foreign policy.

Jason Obrien

Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.