Many people think of cryptocurrency as an investment: something you could buy in the hopes that it will increase in value. But Bitcoin and other cryptocurrencies are increasingly creeping into day-to-day life and becoming a real financial consideration for individuals who might have previously seen cryptocurrency as ‘high risk’.
Our first blog on the topic answered the question, ‘What is cryptocurrency?’, and our second delved into crypto mining, explaining how to get cryptocurrency for ‘free’, trading expertise for digital and financial assets, and how those assets impact your finances.
So, how might the average person – who doesn’t have the technical expertise to mine for currency – get hold of digital assets?
Employer issued crypto tokens
While crypto mining is an option for dedicated, highly skilled digital entrepreneurs, engaging with cryptocurrency in other ways is quickly becoming a viable and accessible option, including in more traditional employment settings.
As trust in cryptocurrency grows, and its use enters mainstream, employers are beginning to consider crypto tokens as a bonus or other form of alternative salary. This would free up cash for the business, while still rewarding and recognising employees’ contributions.
Managing crypto payments and tax liabilities
Employers should consider if a crypto token is a readily convertible asset – an asset that can be easily exchanged for cash. If so, before issuing the crypto tokens, employers must deduct income tax and National Insurance through PAYE based on the value of the tokens.
The consequence of this, is that employees essentially pay more tax and NICs on their ‘normal’ wages, receiving less cash each month.
In the unlikely event that an employee was paid solely in tokens, and there was no cash to cover the tax amount due, the employer would pay the tax on their behalf. The employee would then be required to reimburse them within 90 days. For now, this scenario seems farfetched, but with the rising credibility of cryptocurrencies, it could be a situation that arises in the not-too-distant future.
If the tokens are not a readily convertible asset, an employer does not need to pay income tax through PAYE, and the employee would instead file a Self-Assessment Tax Return.
To discuss the nuances of cryptocurrency investing in more detail, contact Martin Frain at firstname.lastname@example.org or call 0161 703 2500.