If you're carrying on a profit-making scheme you need to pay income tax on any profits that you earn from the scheme.
All amounts you get from the profit-making scheme are included. This includes cryptoassets and money.
Working out if you have a profit-making scheme
Your cryptoasset activity may be a profit-making scheme if:
- there is a coherent plan of action (a scheme)
- you enter into the plan for the purpose of making a profit.
You do not need to write the plan down and it does not need to be exact. A general plan is all that is needed.
If you have more than one purpose for going into the scheme, the main purpose is what is important. If the main purpose of going into the scheme is to make a profit, then amounts you receive from the scheme are taxable.
You'll need to work out how much tax to pay if you're carrying on a profit-making scheme.
Tai heard that an exchange they used was offering staking-as-a-service to its customers for crypto Z. Tai was keen to earn some income from holding cryptoassets.
Tai looked into crypto Z and decided it would be a good investment. While Tai was keen to earn income, they also planned to sell crypto Z once the value had gone up.
Tai bought a large amount of crypto Z and staked it with the exchange. The exchange paid Tai regular amounts of crypto Z.
Tai kept a close eye on the crypto market. Whenever they thought the price had gone up enough they would sell some of his stake for a profit.
Tai was carrying on a profit-making scheme. They had a speculative plan to make a profit from buying crypto Z, staking it with the exchange to earn more crypto Z, and selling it. They carried out that plan and made a profit from it.
Tai's purpose of making a profit from the scheme as a whole (not just from the rewards which were only a small percentage of their overall holding) was supported by their actions.
Tai needs to pay income tax on the:
- rewards received from the exchange
- profits from the sale of crypto Z.