Salary paid in Bitcoin is taxable as earnings at the GBP value when received. Employers must run PAYE and Class 1 NICs. They must report via FPS and value BTC in GBP at the taxable point.
Employees may face capital gains tax when they later sell the same cryptoasset. This article gives worked examples, templates and step-by-step actions for payroll and reporting. It also covers liquidity options and gross-up methods.
Keep the taxable point, the GBP valuation method and the FPS evidence ready for audit. Recording the rate and timestamp removes guesswork and cuts operational risk.
Salary in BTC: PAYE/NICs implications
PAYE and Class 1 NICs apply when an employer pays salary in Bitcoin and the employee is entitled to that pay. The taxable point is the date the employee obtains the right to the income, not a later sale date. HMRC requires valuation in GBP at that taxable point and reporting and payment to be in GBP.
This section sets out the legal position and practical payroll steps. Read the worked examples later to apply numbers.
See the worked examples to apply the numbers.
Statutory basis and guidance
Income tax law treats earnings paid in money or money's worth as taxable employment income. HMRC guidance on cryptoassets sits in the Cryptoassets Manual and payroll rules. HMRC Cryptoassets Manual gives practical notes on valuation and reporting.
Employer responsibilities
The employer operates PAYE, deducts or pays employee NICs, and pays employer NICs in GBP. The employer reports gross pay and deductions on FPS using the GBP value converted at the taxable point. Keep documentary evidence of the BTC amount, the exchange rate and the timestamp.
Recordkeeping prevents disputes with HMRC and simplifies later CGT work for the employee. A clear payroll policy helps the payroll team and auditors.
Ensure you check records and conversions at this stage.
Employee consequences and later CGT
The GBP value at receipt forms taxable employment income for the employee. If the employee keeps BTC, a later disposal can trigger capital gains tax based on disposal proceeds and the recorded acquisition cost. Use the GBP value at the taxable point as the acquisition cost for CGT.
This split avoids undervaluing earnings by waiting until disposal. Keep payroll valuation records to support later CGT claims.
PAYE vs capital gains when paid in bitcoin
PAYE applies to the earnings element at receipt. CGT may apply later on disposal of the same cryptoasset. Treat the payroll event and later disposals as separate tax events.
This method avoids mistakes where employment income is underreported because of price moves. Declare employment income at the taxable point and then handle gains or losses on disposal.
Taxable point explained
The taxable point is when the employee becomes entitled to pay under the contract. For monthly pay, the taxable point is the normal payroll date in the contract. Record the date and the exchange rate source used for conversion.
How CGT interacts with payroll
When the employee later sells BTC, CGT uses disposal proceeds minus the acquisition cost. The acquisition cost equals the GBP value treated as employment income at the taxable point. This prevents double counting or underreporting of gains.
Example: PAYE now, CGT later
A worker receives 0.02 BTC on 10 March 2025 valued at £40,000 per BTC. PAYE and NICs are calculated on £800 at the taxable point, not on any later sale price. If the worker then sells that BTC for £900, CGT applies to the £100 gain using the recorded acquisition cost.
Do employers have NICs liability for bitcoin wages?
Yes. Employers pay secondary Class 1 NICs on earnings even when salary is settled in BTC. Employer NICs are calculated on the GBP equivalent at the taxable point. Unpaid employer NICs expose the employer to liabilities, interest and penalties.
Ensure payroll calculates employer NICs correctly in GBP and records them as payroll liabilities. Remit employer NICs to HMRC in GBP on time.
Which NIC rates to use
Use the Class 1 primary and secondary rates in force for the payroll period. Example rates for 2024/25: employee primary NIC 12%, employer NIC 13.8%. Replace these rates with current rates at each payroll run.
Employer NICs practical steps
Calculate employer NICs in GBP using the same GBP value used for PAYE. Record employer NICs as a payroll liability and remit to HMRC in GBP. Treat exchange fees as a separate expense in accounts.
Case note on liability
The most frequent error at this point is valuing the pay at disposal instead of the taxable point. That error creates underpaid PAYE and NICs and triggers HMRC enquiries. A clear policy prevents this mistake.
Should employers convert BTC to GBP before payroll?
Converting before payroll removes GBP liquidity risk for the employer. The employer can deduct PAYE and NICs in GBP without exposure to exchange timing. However, conversion costs and timing affect the net BTC the employee receives.
Option comparison table
| Option |
Pros |
Cons |
| Convert to GBP before payroll |
Removes GBP risk; simpler FPS |
FX fees; employee loses upside |
| Deduct taxes from BTC |
Employee keeps crypto exposure |
Complex conversions; employer still liable |
| Gross-up salary |
Employee guaranteed net pay |
Higher employer NICs and cash cost |
Practical conversion rules
Choose a reliable exchange or mid-market source and record it. Capture a screenshot, API export or exchange statement showing the rate and timestamp. Document the chosen conversion window in payroll policy and employee consent.
How to run payroll and report to HMRC
Report gross pay and deductions in GBP on FPS using the taxable point valuation. Keep full documentary evidence of the BTC amount, rate and timestamp. If the employer is foreign, register for PAYE if duties or residency create UK nexus.
FPS fields and the free text note
FPS gross pay fields accept GBP only; use the GBP conversion as gross pay. Include a free text note recording the BTC amount, rate provider and timestamp. Keep attached evidence in the payroll file for six years.
Copyable FPS and payroll note template
FPS gross pay (GBP):
- [GBP_value] Tax deducted (GBP): [Employee_PAYE] Employee NICs (GBP): [Employee_NIC] Employer NICs (GBP): [Employer_NIC] FPS note: "Remuneration settled via cryptoasset. BTC amount: [BTC_amount]
- rate source: [Exchange]
- timestamp: [YYYY-MM-DD HH:MM UTC]."
Accounting journals example
Dr Salary expense £[GBP_value]
Cr Crypto wallet (recorded at GBP) £[GBP_value]
Dr Employer NIC expense £[Employer_NIC]
Cr Employer NICs payable £[Employer_NIC]
On paying HMRC:
Dr PAYE payable £[PAYE_and_employee_NICs]
Cr Bank £[PAYE_and_employee_NICs]
Copy the templates into your payroll software.
Worked examples and mini calculator
A copyable set of calculations helps payroll managers size GBP requirements and net BTC pay. Use current tax rates and the GBP/BTC rate at the taxable point for each run. The formulas below are ready to paste into a spreadsheet.
Example with numbers
Assumptions: spot rate £30,000 per BTC at taxable point, gross pay 0.01 BTC. Using example rates 20% income tax, 12% employee NIC, 13.8% employer NIC for 2024/25. This example shows conversion, tax calculation and net BTC returned.
- GBP_value = 0.01 × £30,000 = £300.00
- Employee PAYE = £300 × 20% = £60.00
- Employee NIC = £300 × 12% = £36.00
- Net GBP = £300 − £60 − £36 = £204.00
- Employer NIC = £300 × 13.8% = £41.40
- Total employer cost = £300 + £41.40 = £341.40
- Net BTC to employee = £204 ÷ £30,000 = 0.0068 BTC
GBP_value = BTC_amount * GBP_per_BTC_rate
Employee_PAYE = GBP_value * income_tax_rate
Employee_NIC = GBP_value * employee_NIC_rate
Employer_NIC = GBP_value * employer_NIC_rate
Net_GBP = GBP_value - Employee_PAYE - Employee_NIC
Net_BTC = Net_GBP / GBP_per_BTC_rate
Liquidity planning and gross-up methods
Volatility makes pre-planning essential to ensure HMRC can be paid in GBP. Maintain a GBP payroll float or use scheduled partial conversions. Gross-up removes employee exposure but increases employer cost.
Reserve sizing method
Estimate monthly gross payroll and hold 35 to 40 percent in GBP as a buffer. Example: monthly gross payroll £10,000 requires a reserve of £3,500 to £4,000. Add 1 to 2 percent buffer for exchange fees and slippage.
Practical workflows employers can use
1) Sell a defined share of payroll BTC weekly to create GBP float.
2) Use payroll integrations with custodial providers that auto-convert funds.
3) Gross-up in GBP and fund the tax cost from company cash rather than BTC holdings.
Hedging and third party services
For larger payrolls, consider forward or spot hedges with regulated brokers. Payroll bureaus now offer crypto conversion services tied to pay runs. Check FCA and money laundering rules before integrating third parties.
A worked liquidity shortfall scenario helps planning. Suppose gross pay is 0.05 BTC on payday; taxable-point spot = £40,000/BTC so GBP_value = 0.05 × £40,000 = £2,000. Using example rates (20% income tax, 12% employee NICs, 13.8% employer NICs): employee PAYE = £400, employee NICs = £240, net GBP = £1,360, employer NICs = £276, total employer cost = £2,276.
HMRC requires PAYE and NICs remittance in GBP within the usual PAYE payment window. For many small employers, that window is 22 days. If BTC falls to £30,000 before conversion, the same 0.05 BTC converts to £1,500, a shortfall of £500 against the PAYE requirement.
To avoid shortfalls, the employer could convert a defined BTC tranche at the taxable point. For example convert 0.02 BTC at £40,000 to secure £800 towards PAYE. The employer could also maintain a GBP payroll float sized by expected price movement. Alternatively, the employer could gross-up and fund PAYE and NICs from company cash.
Show numbers when setting policy so reserves and conversion timing become explicit rather than vague.
Common reporting mistakes and how to avoid them
Many employers incorrectly value pay at disposal rather than at the taxable point. Other faults include failing to document the rate and not registering for UK PAYE when required. A documented policy and payroll checklist prevent recurring errors.
Frequent employer errors
The most common error is assuming crypto payments avoid PAYE and NICs. Another frequent problem is not planning GBP liquidity to fund HMRC payments. Both errors lead to tax shortfalls and penalties.
Practical safeguards
Include a contractual clause requiring employee consent to the conversion method. Record the GBP rate and timestamp at payment and archive exchange evidence. Set a payroll approval step to verify GBP funds are available before remitting PAYE.
Anonymous case example
A common case: a UK startup paid 0.02 BTC monthly but kept all BTC. When tax became due, GBP proceeds were insufficient and HMRC issued penalties. The employer had to sell equity to raise GBP and suffered reputational damage.
Use this rule: document the GBP market rate, exchange provider and timestamp at the taxable point. Without this evidence, HMRC inquiries become lengthy and costly.
If planning to pay salary in BTC, engage a payroll provider and a tax adviser to set a GBP conversion and recordkeeping policy before the first payroll run. Employers should include a clear, copy-ready pay-by-crypto clause in contracts or a separate written consent form that records the employee's understanding of tax consequences and the employer's obligations.
Example wording:
"The employee agrees to receive part or all of their salary in cryptoassets (specified as Bitcoin or other token). The employer will convert the cryptoasset to GBP at the taxable point for PAYE and NICs reporting and remit tax liabilities to HMRC in GBP. The employee acknowledges that taxes remain payable in GBP and that any disposal of received cryptoassets may trigger Capital Gains Tax.
The employee consents to the employer recording the crypto amount, conversion source and timestamp for payroll records."
Save the signed consent (electronic signature acceptable) alongside payroll files. Reference the consent in the FPS free-text note so payroll teams and auditors can show informed acceptance.
Your next step
Decide a payroll policy: convert before payroll, deduct taxes from BTC, or gross-up and fund tax in GBP. Write a short payroll procedure describing valuation source, conversion window and employee consent. Register or notify HMRC where required and keep records for six years.
Frequently asked payroll questions
What if the employer is overseas?
If the worker is UK resident or works in the UK, PAYE and NICs usually apply. Foreign employers may need to register for PAYE or appoint a UK payroll agent. Seek cross-border payroll advice for treaty and registration issues.
How should the GBP rate be chosen?
Choose a reputable exchange or mid-market source and log it at the taxable point. Record the provider, the exact rate and the timestamp for audit evidence. If using an average, document the averaging method.
Can the employee agree to accept only BTC without removing tax obligations?
Employee agreement does not remove PAYE and NIC responsibilities for the employer. The employer remains liable to operate PAYE and to pay employer NICs in GBP. Any agreement must explain that taxes are still due in GBP.
When does CGT apply to the same BTC?
CGT applies when the employee disposes of the BTC. The acquisition cost for CGT is the GBP value recorded at the taxable point. Keep payroll valuation records to support later CGT calculations.
Are tokens other than bitcoin treated the same?
Treat readily convertible tokens similarly for PAYE and NICs. Illiquid or restricted tokens require an independent valuation and specific documentation. If a token is not readily convertible, get specialist advice before payroll.
What records must payroll keep and for how long?
Keep rate evidence, exchange statements and FPS notes for six years. Maintain payroll journals showing GBP conversion and NICs paid. These records support both PAYE compliance and later CGT calculations.
Non-RCA or hybrid tokens need specific valuation and documentation because market quotes can be unreliable or unavailable and contractual restrictions affect fair value. For example, an employer pays 1,000 units of a governance token that trades at £5 on a thin market but is subject to a six-month lock-up.
For PAYE purposes a prudent valuation might apply a liquidity discount. Using a 30% discount gives a taxable GBP value of 1,000 × (£5 × 0.7) = £3,500. That GBP figure becomes the employee's acquisition cost for later CGT.
If tokens are subject to vesting or transfer restrictions, record the restriction and the discount applied. Also record the valuation method and the timestamp. For marginally liquid tokens consider obtaining a dated broker statement or third-party valuation to substantiate the GBP figure used on FPS and in payroll journals.
Additional resources and data points
HMRC updated guidance on cryptoassets appears in the Cryptoassets Manual (2022). Example tax rates referenced above relate to 2024/25 wage rules and NIC percentages. The employer NIC rate 13.8% has applied for years and remains common in 2026.
Planned payroll float: estimate monthly gross payroll and hold 35-40 percent in GBP as a working reserve. For small teams, a reserve equal to one payroll cycle often suffices.
Payroll flow: BTC salary to HMRC
1. Determine taxable point and rate
2. Convert required BTC portion for PAYE or calculate gross-up
3. Run payroll in GBP on FPS; attach BTC evidence
4. Remit PAYE and employer NICs to HMRC in GBP
