Understand the rules: paying staff in crypto

Crypto tax in the UK

There are no new tax rules specifically created in the UK for crypto assets. Instead you apply the existing tax rules to crypto transactions. Basically, it very much depends on the purpose of a crypto transaction that determines what taxes, if any, apply.

HMRC’s guidance focuses primarily on Exchange Tokens rather than Security aka Utility Tokens. Guidance on Security and Utility Tokens guidance on tax treatment is expected to be published in due course.

Paying your staff in crypto

If you decide to pay an employee or you are an employee that who receives cryptoassets instead of cash for work completed or “earnings”, then the tax treatment is the same as if you were receiving cash, in other words income tax and National Insurance Contributions (NICs) are payable.

PAYE or Self Assessment?

The next step to consider is whether these crypto earnings should be taxed via payroll or PAYE or via self assessment.

So Employers are obliged to pay their employees via PAYE or payroll if they make cash or notional payments.

Notional payments are taxable amounts that are subject to PAYE even though there is no cash payment made to an employee. Notional payments can include cash vouchers, non-cash vouchers or credit tokens and something called readily convertible assets (RCAs).

The general consensus is that cryptoassets are not cash but are considered RCAs if the cryptoassets awarded to employees can be traded, in other words can be covered into cash.

If you decide the cryptoasset is an RCA, you would as an employer need to value the cryptoassets on a ‘best estimate’ basis and apply appropriate PAYE income tax and NICs.

other tax considerations to think about

VAT

Some cryptoassets, for example, utility tokens that gives you the rights to goods or services, may be liable for VAT.

Stamp taxes

Stamp duty is charged where there is a transfer of stock or marketable securities, as well as interests in partnerships.

HMRC’s view is that existing exchange tokens do not meet the definition of stock or marketable securities but the guidance is being revised all the time, so we advise to care and seek advice.