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Cryptocurrencies are building themselves a niche within the accounting world. A growing number of traders now seek the help of accountants for crypto tax calculations and record-keeping. But the question remains, should accountants dive into this growing market?

 Regardless of your opinion on cryptocurrencies, there is no escaping the fact that they are becoming prevalent and will soon be an unavoidable part of the finance industry.

The latest FCA estimate shows a rising awareness regarding cryptocurrencies across the UK, with 78% of adults aware of their existence, compared to 73% last year. The number of holders has also increased and now sits at 2.3m people. It’s no surprise then that accountants across the country are preparing for an increased amount of crypto tax enquiries.

Digital currencies are renowned for being complex and volatile, which is why many accountancy firms have avoided them in the past. However, with their increase in popularity, firms like TS Partners are starting to offer cryptocurrency tax services and taking on more clients with queries regarding taxing on crypto assets.

Many experts are optimistic about the increase of crypto trader tax and its opportunities for accountants across the country. They believe there is a large market out there, but many firms aren’t willing to take the dive.

HMRC Look to Clamp Down

One glance at the figures should be all it takes to understand why HMRC is actively pursuing cryptocurrency traders. There are no specific taxes for cryptocurrency assets in the UK (yet). Still, the tax department has made it clear that most businesses and individuals trading in cryptos will be subject to Capital Gains Tax on any profits made on digital currencies.

HMRC uses its information-gathering skills and the help of several crypto exchanges to obtain pertinent knowledge regarding values, profits, and who is trading so they can be sent timely reminders to consider CGT when it comes to submitting a self-assessment.

Cryptocurrencies are a constant challenge for accountants. The fast-moving and ever-changing nature of the market means firms are always guessing how HMRC will deal with the changes. It won’t surprise us if the latest HMRC manual regarding tax on cryptocurrencies is edited a few months down the line.

Software is Available, but Still Challenging

A multitude of software sprung onto the market to help traders with crypto tax, including Koinly, Crypto Tax Calculator, and many more. Most of the software available plugs into e-wallets and cryptocurrency exchanges, intended to make it easy for users and accountants to extract data into their own record-keeping systems using API feeds or CSV file transfers.

The problem with much of the available software is that they are difficult to use, comprehend and report an audit trail. Furthermore, the unique way HMRC treats cryptocurrency gains also worries UK users. Many of these tools are set up for an American market and rarely translate well for UK tax laws.

One major area for concern is exchange rates. Exchanges will often use different rates, producing different calculations. In such a volatile market, where rates can change in a second, variances become incredibly important.

Another issue accountants face with the software is that it’s complicated for exchanges to track currency moving between wallets and brokers. For example, if you purchased Bitcoin on Exchange A, transferred it to your e-wallet, and then moved it to Exchange B, the latter wouldn’t know the original price paid for the Bitcoin in Exchange A.

We suggest reverse-engineering the process and exporting each exchange file. However, you will then encounter the issue of collecting each report into a uniform format that allows you to file with HMRC. This process can be especially complicated for crypto traders who make large numbers of trades, as volume can make keeping track of each exchange even harder.

Advising Your Clients on Software

Many software tools for crypto tax over-complicate each process. So, we recommend you make the most of free trial offers. Such offers give the client and yourself a chance to familiarise yourself with the tool and see if it’s the right choice for each of your needs.

You can test the tools by running hypothetical scenarios and seeing how it works, if it produces the expected results, how it calculates exchange rates, etc. Unless your firm offers a software service, make sure the tool you recommend to a client is easy for them to use and can provide reports that they can then send to you. Find a system that works for your firm with a tool that works for your client base. 

Passion & Time

There are plenty of opportunities to build and grow your business by offering crypto tax services, but it would be wise to be cautious about it too. Tax services for cryptos aren’t everyone’s cup of tea, and it’s not a simple market. 

Specialising in Cryptocurrency Tax takes passion and time. It’s a constantly changing and evolving area of the market, which involves keeping up to date with the latest trends, changes in how HMRC plans to manage them, etc. 

There is also all the terminology you’d need to know and understand to a respectable level. We aren’t trying to put you off, but you need to be aware of what you’re taking on when tackling tax on cryptocurrencies.

 Don’t hesitate to contact the experts at TS Partners to find out how they can help you with tax services for crypto assets.

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