The landscape has changed for digital assets over the past 12-18 months. In this article, we will explore experiences for individuals who wish to jump aboard the Bitcoin train.

Individual investors must bear in mind that there are tax considerations of acting in the digital asset marketplace.

Such individuals fall into three main categories:

1. Gamblers;

2. Home amateurs;

3. Professionals.

In the UK, the gamblers are just that—literally. Poker playing and other forms of gambling are tax-free activities in the UK, so many poker players have presumed that “playing” in the crypto markets is, likewise, a tax-free activity.

These individuals may have been shocked to discover that this is not the case.

The home amateurs are individuals who simply took note of the rising market and engaged in speculation on a hobbyist basis. Some of these people did far better than they could have dreamt—and then lost it all within months.

The professionals, those heavily involved in blockchain and cryptocurrency. They might be those writing the next generation of blockchain software.

These individuals are often being remunerated with tokens and with coins, some of which are not well-known publicly and have no current value. However, they are still taxable as remuneration and liable to PIYE or income tax depending upon whether they are readily convertible assets.

Thus, individuals involved with the digital asset marketplace come to it from a variety of perspectives and with differing levels of sophistication in terms of tracking the transactions made and dealing with the resulting tax consequences.

It is essential for individuals to track their taxable transactions, first and foremost.

A variety of commercial software products are available for this purpose. In particular, those software products which will import downloads direct from exchanges, with read-only APIs, and also directly from wallets, will be most useful for later review by tax professionals employed by investors.

The advice of tax professionals should also be sought out to maximize the avoidance of tax liability.

At this juncture, nearly anything that can be done in the real world can also be done in the crypto world. That is, we are seeing more and more crypto arbitrage, futures and options, and yield farming.

Any investor should seek and out accept tax advice upfront, prior to engagement with the digital asset marketplace.

In the UK, the HM Customs and Revenue (HMRC) are developing a less light touch when it comes to reviewing such transactions. Regulatory inquiries are being made more frequently, demanding the details of these sorts of transactions.

Proper accounting records are required to respond to these inquiries, and the proper tools are required to produce those records.

Thus, before taking any step in the digital marketplace, individuals would be well-advised to consult a tax professional as to potential liability and as to the best way to create, maintain, and produce transactional records.

Thomas Hulme of Mackrell.Solicitors moderated a conversation with Geriant Jones of BKL Noah Buxton and Yu-Ting Wang, Armanino LLP, and other tax professionals at the Mackrell International webinar titled “Digital Asset Tax Issues.” You can view the entire session at https://youtu.be/davbCdhw3TQ