Running crypto transactions via a limited company
Many people are considering transferring their personally owned crypto and running crypto transactions via a limited company. This has been partly fuelled by increased speculation that the new Labour government could align capital gains tax rates with income tax rates.
Overview
Running crypto transactions via a limited company can offer tax efficiency, asset protection, plus business diversification. In this post, we'll discuss the UK tax implications of transferring personally owned cryptocurrency to a limited company. Furthermore, we'll cover what you need to know to stay compliant and optimise your financial strategy.
Why transfer crypto to a Limited Company?
Transferring cryptocurrency to a limited company offers several advantages. Firstly, it can be tax efficient. A company benefits from a lower tax rate compared to an individual.
Additionally, transferring your crypto to a limited company can diversify your company's business holdings. You can use the company's crypto to act as an investment or a medium for transactions.
What's more, your company can potentially leverage crypto for business operations. This includes paying suppliers or accepting customer payments.
Tax implications of transferring crypto to a limited company
You need to consider the tax implications, before you make the transfer and start running crypto transactions via a limited company. These are summarised below:
Capital gains tax
When you transfer your crypto to a company you are treated as making a disposal for capital gains tax purposes. So you'll need to consider the market value of your crypto on transfer to your company and it's original acquisition cost. Equally importantly, you must ensure accurate reporting of this transaction to HMRC.
This transactions has several tax advantages. Firstly, you can potentially crystallise a capital gains taxed at 20% if the rate does increase. Secondly, if you have capital losses from previous crypto transactions these can be offset against the capital gain. This can mitigate the tax liability on this transaction.
Lastly transferring the crypto to your company, results in a credit to your director's loan account. This is because you have transferred a valuable intangible asset to your company. You can withdraw this 'credit' tax-free from your company as and when funds permit. Ideally you have sufficient liquidity to withdraw company funds to pay the capital gains tax liability on the original transfer,
Corporation tax
When a company purchases crypto, it is treated as an asset for corporate tax purposes. Therefore the initial purchase price of the cryptocurrency should be recorded as an asset on the company's balance sheet.
If the crypto held by the company is in the form of exchange tokens (like Bitcoin) it is unlikely to fall within the intangible assets regime. This is the case, even when the crypto may be used in as part of the company's trading activities. However, there is a different tax treatment for crypto where a company develops and produces it's own crypto. For example, a company creating it's own utility token.
When a company receives cryptocurrency, it should record it as an intangible asset on the company's balance sheet using reliable valuation methods to determine its market value. This value forms the basis for future tax calculations and financial reporting.
Any capital gains realised from the sale of crypto will be subject to corporation tax at a maximum rate of 25% currently. If the company sells the cryptocurrency, it must pay corporation tax on any profits. However if the company realises losses from crypto it can offset these against the company's other profits, reducing it's overall tax liability.
VAT
The sale of crypto is generally speaking considered to be VAT exempt. As a result selling crypto to your company will not trigger a VAT liability.
Additionally when crypto is exchanged for goods and services, no VAT will be due on the supply of crypto itself.
Summary
Transferring crypto to your company can offers benefits like tax efficiency and asset protection. However, equally importantly you should consider potential risks, such as market volatility and regulatory changes. You should balance the benefits against these risks to make informed decisions.
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