Are employers unsure how to treat payments or benefits made in cryptoassets? Does HMRC expect PAYE, National Insurance contributions (NICs) and accurate reporting when staff receive tokens, NFTs or other digital assets? This guide sets out practical, employerâfacing steps to handle Payroll Reporting: PAYE & Crypto Benefits under UK rules.
This resource focuses on what payroll teams, employers and accountants must do to value crypto benefits, operate PAYE/NI, submit RTI/P11D information and decide when compensation in crypto sits inside payroll rather than selfâassessment.
Key takeaways: what to know in 1 minute
- Treat crypto benefits as taxable money's worth: HMRC considers cryptoassets provided to employees as a benefit in kind and expects valuation in GBP at the point the employee obtains the asset.
- PAYE and employer NICs can apply immediately: Where crypto is provided as salary or a contractually agreed reward, PAYE and both employee and employer NICs are likely due and must be reported via RTI.
- Valuation matters: Use a reliable market rate (exchange/aggregate) on the date the employee acquires the asset; document methodology to withstand HMRC enquiry.
- Different rules for creators and contractors: NFT creators or contractors receiving royalties or tips may fall outside payroll and into income tax/selfâassessment or into PAYE if payments are employmentârelated.
- Keep clear records: Date/time, market rate source, transaction IDs, contractual terms and payroll entries are essential for HMRC compliance and future capital gains calculations.
Payroll Reporting: PAYE & crypto benefits â obligations for employers
HMRC treats cryptoassets given to employees as money's worth where there is an identifiable economic value. This triggers typical employment tax rules:
- If crypto is paid as salary or contractual remuneration, operate PAYE on the cash equivalent and deduct employee NICs, plus account for employer NICs.
- If crypto is provided as a benefit in kind, and not taxed through PAYE at source, report it on forms P11D and the employer may need to pay Class 1A NICs.
How to value crypto for payroll purposes
- Use a reputable exchange or an average of exchanges to determine the GBP equivalent at the moment the employee obtains control of the asset.
- For volatile assets, pick a consistent method (midâmarket rate at 09:00 UTC, daily VWAP, or exchange average) and record the source URL and timestamp.
- For NFTs or illiquid tokens, if no public market exists, base value on recent armsâlength sales of similar items or an independent appraisal, documented carefully.
Reporting channels and timings
- RTI (Real Time Information): If the payment is earnings, include the cash equivalent in the employeeâs RTI submission for the pay period it relates to. Use the payroll software to add a pay element labelled clearly (e.g. "crypto salary â GBP equivalent").
- P11D: If the employer instead treats the crypto as a benefit in kind not taxed at source, include details on the P11D for the tax year and calculate Class 1A NICs where applicable.
Refer to HMRC guidance: HMRC: Tax on cryptoassets and HMRC: PAYE for employers.
How NFT sales are taxed under HMRC rules
When NFTs interact with payroll, two employer scenarios arise: NFTs used as compensation, and NFTs received by employees who later sell them.
- If an employer transfers an NFT as part of pay, treat the NFT's GBP value at acquisition as earnings subject to PAYE/NICs.
- If the employee later sells the NFT privately, the disposal may trigger capital gains tax (CGT) for the employee; the employer's payroll treatment does not remove that CGT event.
Example: NFT paid as bonus
If an employee receives an NFT as a discretionary bonus, the employer should calculate the GBP equivalent on the date of receipt and operate PAYE/NICs on that amount. Record the payment on RTI and note the NFT transaction ID and valuation method in payroll records.
Creator tax: royalties, tips, commissions explained
Creators receiving royalties, tips or commissions related to NFTs may be taxed differently depending on status and contract terms.
- Employees generating NFTs as part of duties: royalties or additional token rewards tied to employment typically form employment income and should be subject to PAYE if paid by the employer.
- Selfâemployed creators or contractors: royalties and commission payments received directly by a creator in their personal capacity usually fall under trading or miscellaneous income and are declared on Self Assessment.
- Platform disbursed tips: where a platform sends tips to an employee via the employer's payroll, treat them as earnings; where tips go straight to a selfâemployed creator, treat them as selfâemployed income.
Employers and payroll teams should obtain contractual clarity: who pays the royalty, and whether the creator is an employee or contractor. Where in doubt, document the rationale for the chosen payroll treatment.
Calculating capital gains on NFT disposals (context for payroll teams)
While CGT is an employee matter, payroll records often feed CGT computations because the acquisition value for CGT is the amount taxed in payroll.
- Base cost for CGT purposes is the GBP value when the employee acquired the NFT (this may be the amount reported as earnings if taxed under PAYE).
- On disposal, the employee calculates gain = disposal proceeds (GBP) â base cost (GBP) â allowable costs (selling fees).
- If the employer paid for the NFT as part of a benefit and included it in taxable pay, that taxed amount becomes the employee's acquisition cost for CGT.
Payroll should therefore retain valuation records to assist employees with later CGT reporting.
Record keeping for NFT creators: what HMRC needs (and why payroll must help)
HMRC expects comprehensive records that support the valuation and timing of taxable events. Employers must keep:
- Date/time the employee obtained the asset;
- GBP valuation source and calculation (exchange, rate, timestamp);
- Transaction identifiers (wallet addresses, transaction hashes);
- Contractual basis (employment contract clause, bonus memo);
- Payroll entries and RTI submission references.
These records support PAYE compliance and provide the employee with evidence for any subsequent Self Assessment CGT entries.
When NFT trades trigger income tax versus capital gains
Deciding whether proceeds are income or capital affects whether payroll is involved.
- Income (employment/earnings) arises where activity is contractual employment, or where the receipt is effectively payment for services. In that case, operate PAYE.
- Capital arises where the asset is held as an investment and later disposed of; CGT applies, reported by the taxpayer on Self Assessment.
Payroll teams should use contractual tests and the substance of the relationship. If an employer expects to pay creators regularly for producing NFTs and controls delivery, PAYE is likely.
Filing on Self Assessment: reporting crypto and NFTs (what payroll should communicate to staff)
Employers must inform employees when crypto has been processed through payroll and provide documentation to aid Self Assessment:
- Provide a pay statement showing the GBP equivalent and the date of taxable receipt.
- Explain whether the amount was taxed via PAYE or reported as a benefit (P11D).
- Offer a summary of transaction IDs and valuation sources if employees will face CGT on disposal.
Employees who require Self Assessment should use details from payroll to populate sections for taxable pay and capital gains. For HMRC selfâassessment guidance see Self Assessment tax returns.
Practical payroll workflow: steps to process crypto benefits
Step 1: identify the nature of the payment
- Is the crypto a contractual salary, bonus, commission, or fringe benefit? The contract dictates payroll treatment.
Step 2: decide valuation method and apply consistently
- Choose a market source and timestamp. Document the method in payroll policy.
Step 3: operate PAYE or record as P11D
- If earnings, process via RTI and deduct PAYE/NICs. If benefit, include in P11D and calculate Class 1A NICs.
Step 4: retain records and provide employee evidence
- Store a payroll note, valuation evidence and transaction references and supply the employee with a pay statement and benefit report.
Comparative checklist: crypto salary vs benefit in kind
| Aspect |
Crypto as salary |
Crypto as benefit in kind |
| Tax point |
PAYE applied at pay date |
P11D reporting; not taxed at source unless payroll opted |
| Employer NICs |
Class 1 NICs via payroll |
Class 1A NICs on P11D amounts |
| Employee CGT position |
Acquisition cost = taxed GBP value |
Acquisition cost = GBP value when obtained |
Payroll flow for crypto benefits
Payroll flow: crypto benefits processed correctly
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Step 1 â Confirm contractual status and payment type
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Step 2 â Value crypto to GBP (record source & timestamp)
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Step 3 â Operate PAYE/NI via RTI or report on P11D
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Step 4 â Retain records; provide employee evidence for Self Assessment
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Clear policy + consistent valuation = reduced HMRC risk
Advantages, risks and common errors
Frequently asked questions
Do employers need to put crypto on the payslip?
Yes. If crypto is pay, include the GBP equivalent on the payslip and in the RTI submission so employees see taxable amounts.
How should payroll value an NFT with no market?
Use recent comparable sales or an independent appraisal; record the method. If a reliable market appears later, document why the earlier valuation was reasonable.
Are employer NICs due on crypto benefits?
If treated as earnings, Class 1 employer NICs apply. If reported as P11D benefits, Class 1A NICs may apply instead.
Can payroll software handle crypto items?
Many modern payroll packages support custom pay codes; use a clear code and include the GBP equivalent. Integrations with cryptoâpay firms may automate valuation.
What happens if HMRC enquires about a crypto payment?
Provide the contractual basis, valuation methodology, RTI/P11D submissions and transaction evidence. Clear records reduce enquiry scope.
When should an employer report on a P11D instead of PAYE?
If the employer chooses not to tax the benefit at source, or the payment is genuinely a nonâsalary benefit, report on P11D and calculate Class 1A NICs.
Do tips paid in crypto always go through payroll?
Not necessarily. If the employer redistributes tips through payroll, they are taxable earnings. If the platform pays tips directly to creators, the recipient may be selfâemployed for tax purposes.
Your next step:
- Review contracts and decide which crypto payments are salary vs benefits.
- Set a documented valuation policy (exchange source, time, method) and update payroll procedures.
- Update payroll software to capture GBP equivalents and maintain transaction evidence for HMRC and employees.