UK tax and cryptoassets

There are currently no specific UK tax rules for how cryptoasset transactions should be taxed. Instead it is necessary to apply the existing tax rules to crypto transactions. HMRC’s view on how the existing tax rules apply are contained in its Cryptoasset Manual. However, HMRC does not always consider itself bound by its guidance manuals so care needs to be taken if too much reliance is placed on them without regard to the underlying tax legislation.

HMRC’s guidance focuses primarily on Exchange Tokens rather than Security and / or Utility Tokens. HMRC has stated that it will issue guidance on Security and Utility Tokens but to date nothing has been published.

Employment tax

An employee who receives cryptoassets as “earnings” derived from their employment is potentially liable to income tax and National Insurance Contributions (NIC) on the value of the asset received as a "notional payment".

Section 62(b) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) defines "earnings" to include:

"…any gratuity or other profit or incidental benefit obtained by an employee if it is in money or money's worth".

For NIC purposes, section 3(1)(a) of the Social Security Contributions and Benefits Act 1992 defines earnings as:

"…any remuneration or profit derived from an employment".

HMRC considers cryptoassets received as employment income count as “money’s worth” and are therefore subject to income tax and NIC on the value of the asset (and potentially as of April 2023, subject to the new Health and Social Care Levy as well).


Once it is established that an award of cryptoassets constitutes earnings from the employment, the next consideration is the extent to which those earnings should be taxed through payroll/PAYE as opposed to self-assessment.

Broadly UK companies are under an obligation to operate PAYE withholding on actual cash payments and notional payments they make to their employees. There is some debate on this point but the general consensus is that cryptoassets are not cash.

Notional payments are taxable amounts that are subject to PAYE even though there is no cash payment made by the employer. The effect of this is that the employer is therefore (notionally) treated as having made a payment. Notional payments include, amongst other items: the provision of cash vouchers, non-cash vouchers and credit tokens and something called readily convertible assets (RCAs).

Cryptoassets will be RCAs if trading arrangements exist, or are likely to come into existence, the effect of which enables the tokens to be converted into their monetary value. If the cryptoassets in question were capable of being traded on external markets and peer to peer purchase/sale of them was possible, we would expect HMRC to consider them RCAs.

If the cryptoassets were RCAs, the employer would need to value the cryptoassets on a best estimate basis and apply appropriate PAYE income tax and Class 1 (employer and employee) NIC deductions (and potentially as of April 2023, Health and Social Care Levy deductions).

Additional tax points to watch

  1. VAT

Some cryptoassets (particularly utility tokens representing the right to some goods or services) could be liable for VAT.

2. Stamp taxes

Stamp duty is charged on instruments that transfer stocks or marketable securities, and interests in partnerships. Stamp duty reserve tax is charged on agreements to transfer chargeable securities. HMRC’s view is that existing exchange tokens are not likely to meet the definition of stock or marketable securities or chargeable securities but watch this space.

This is a rapidly developing area so we advise taking care and watching out for legislative and guidance updates.