Are employees or suppliers being paid in Bitcoin or other crypto and unsure how HMRC will treat those payments? This guide sets out clear, practical rules for Payroll & Salary Paid in Crypto in the UK so employers and SMEs can calculate tax, report correctly and avoid costly mistakes.
Key takeaways: what to know in one minute
- Payments in crypto count as earnings or business income depending on who is paid; for employees crypto salary is subject to PAYE and National Insurance.
- HMRC treats crypto received by a business as either revenue or capital; classification changes tax consequences.
- Bookkeeping must record fiat equivalents at the time of receipt or payment; this figure drives PAYE, VAT and CGT calculations.
- VAT applies only in specific cases; most crypto transfers are outside VAT, but invoicing and consideration in fiat equivalent matter.
- Practical steps: record timestamps, use a reliable exchange rate source, issue payslips in fiat equivalence and get written employee consent.
Are SME crypto payments taxable in the UK? what determines taxability
SME payments in crypto are taxable in the UK when they represent consideration for services, goods or employment. Tax consequences depend on the payer-payee relationship:
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Employee remuneration: crypto is treated as salary subject to PAYE income tax and employee/employer National Insurance contributions (NICs). PAYE rules apply to the fiat equivalent at the time of payment. Employers must operate PAYE and report via payroll RTI. Cite HMRC guidance: HMRC: tax on cryptoassets.
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Contractor or supplier: if paid for trade supplies, receipts count as business income and are taxable under income tax (sole trader) or corporation tax (limited company) on the fiat value when received.
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One-off transfers or gifts: purely gratuitous transfers with no consideration are unlikely to be taxable receipts, but careful records are still required as HMRC may scrutinise patterns that suggest disguised remuneration or trading.
Key determinant: the economic substance of the payment. If crypto is paid as a salary substitute, PAYE and NICs apply; if paid as payment for goods or services to a business, treat it as trading income.
How HMRC treats Bitcoin receipts for SMEs: income, capital or barter
HMRC distinguishes receipts depending on the purpose:
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Trading income: crypto received by a business in exchange for goods or services is treated as revenue. Value the receipt in GBP at the time of receipt and include in the turnover. This applies for self-employed individuals and companies.
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Capital receipts: if a business holds crypto as an investment (not acquired in the course of trading) and later disposes of it, Capital Gains Tax (CGT) or corporation tax on chargeable gains applies.
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Barter transactions: when crypto is used to settle a debt or exchange for another asset without fiat conversion, the taxable event still arises at the market value in GBP at the point of receipt.
Practical implication: SMEs must decide whether crypto receipts belong in day-to-day turnover or are investment holdings. That decision affects whether the receipt is taxed as income or later taxed as a capital gain.
How to value crypto receipts for tax
- Use a consistent, credible exchange rate source (major exchange or an average of reputable exchanges).
- Record the exact timestamp and GBP value at the moment the amount becomes controllable by the business.
- If instant conversion services are used (crypto swapped for GBP immediately), record the GBP amount received after fees.
Recording and reporting crypto sales: bookkeeping essentials for payroll & suppliers
Accurate bookkeeping is the foundation of compliance. For Payroll & Salary Paid in Crypto the record-keeping rules are stricter because of PAYE responsibilities.
What records must an employer keep
- Employee consent forms or contractual variation documenting agreement to be paid in crypto.
- Payslips showing gross pay in GBP equivalent, income tax, employee NIC, employer NIC and net pay.
- Source evidence of exchange rate used (screenshot or API record), transaction ID, wallet addresses and date/time.
- Records of conversions (if employer converts crypto to GBP on behalf of employee) and bank settled amounts.
What records must a business accepting crypto keep
- Sales invoices showing GBP equivalent at receipt, any VAT treatment, payment method and reference to the crypto received.
- Wallet transaction logs, exchange receipts and fees.
- A ledger entry in GBP for each receipt and disposal with date/time and source of rate.
VAT, invoicing and accepting Bitcoin payments: what SMEs must check
VAT treatment is often a point of confusion. Key rules:
- Most crypto tokens are treated as a means of exchange rather than as goods or services for VAT; therefore, supplies paid for in crypto are subject to the same VAT rules as supplies paid in sterling. VAT liability arises on the supply itself, not on the crypto.
- Invoices must state the consideration in GBP and indicate VAT charged on the supply where applicable. If prices are displayed in crypto, the invoice must still show the GBP equivalent for tax purposes.
- If the business exchanges crypto for fiat and incurs fees, the fees are allowable as expenses when calculating VAT/taxable profit.
| Scenario |
VAT treatment |
Invoice requirement |
| Sale of goods with crypto payment |
VAT applies if supply is standard-/reduced-rated |
Invoice in GBP equivalent; record crypto receipt details |
| Exchange of crypto for another crypto |
Generally out of scope for VAT on the crypto swap itself |
Record market value in GBP at time of swap |
| Payroll paid in crypto |
Not a VAT issue; PAYE/NICs apply |
Payslip must show GBP equivalent and tax deductions |
For official guidance on VAT and crypto see HMRC: VAT Notice 700 and the crypto guidance above.
Calculating Capital Gains Tax on Bitcoin receipts: when CGT applies to payroll context
CGT generally applies when a disposal of a cryptoasset occurs and the asset is a capital asset for the taxpayer. For Payroll & Salary Paid in Crypto the common scenarios are:
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Employee receives salary in crypto: the initial taxable amount is the GBP equivalent included in income tax. When the employee later disposes of that crypto, any gain or loss for CGT is measured from the base cost equal to the GBP value already taxed as income. In short: taxed twice in principle but the base cost reflects the taxed amount so CGT only applies to subsequent appreciation.
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Business receives crypto and holds it as investment: CGT or corporation tax on chargeable gains applies on disposal.
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Employer converts crypto to GBP immediately for payroll: employer recognises PAYE liabilities on the GBP amount; CGT is unlikely to arise for the employer if no capital asset was held for investment.
Example (employee): an employee is paid 0.1 BTC when BTC = £30,000; taxable income = £3,000. If the employee later sells those 0.1 BTC when BTC = £40,000, disposal proceeds £4,000 less base cost £3,000 = £1,000 gain liable to CGT (subject to allowances and rates).
Practical tax tips for SMEs paying suppliers in crypto: reduce risk and compliance cost
- Always convert the crypto payment into a clear GBP equivalent on the invoice and ledger at the moment of receipt.
- Obtain written agreements with employees or suppliers confirming payment method and how GBP-equivalent will be calculated.
- Use payroll systems capable of recording PAYE on GBP equivalents and generating payslips with statutory deductions.
- Consider using a payroll crypto provider for automated conversions and reporting, but check fees and custody arrangements.
- Retain full audit trail: wallets, transaction hashes, exchange receipts, API logs and bank settlement slips.
How HMRC will view employer-run conversion services
If an employer converts employee crypto to GBP immediately and pays the employee the GBP equivalent, that conversion and settlement is a payroll administrative choice. It does not remove the requirement to calculate PAYE on the GBP equivalent at the time of the original payment.
How to operate payroll & salary paid in crypto: step-by-step checklist
- Confirm legal basis and get employee consent documented.
- Update contracts or add a lawful variation showing how pay will be denominated and converted.
- Choose a consistent exchange-rate source and record timestamp for each payment.
- Calculate gross pay in GBP, operate PAYE and report via Real Time Information (RTI).
- Provide payslips in GBP showing taxes and NICs.
- Reconcile payroll ledgers with wallet/exchange records.
Crypto payroll flow for SMEs
🔁 Agreement → 🔎 Rate & timestamp → 🧾 Payslip (GBP) → 💷 PAYE & NICs → 🔒 Record
1️⃣
Agree payment method
Contractual consent and conversion method
2️⃣
Capture rate & time
Document source exchange and timestamp
3️⃣
Operate PAYE
Report via RTI in GBP; show payslip figures
When to use conversion vs holding: advantages, risks and common errors
Benefits / when to apply
- ✅ Immediate conversion reduces payroll volatility and simplifies PAYE, since employer pays NICs and tax in GBP.
- ✅ Holding crypto can yield future gains, which may be desirable if the business views crypto as treasury asset.
- ✅ Using automated payroll providers reduces manual errors and improves audit trail.
Errors to avoid / risks
- ⚠️ Failing to operate PAYE when crypto is salary — this is a frequent HMRC trigger for enquiry.
- ⚠️ Not documenting exchange rates or using unreliable sources, which undermines valuations.
- ⚠️ Ignoring employee contractual consent, potentially creating employment disputes.
- ⚠️ Treating crypto receipts as capital when they are trading income, which misstates taxable turnover.
Practical examples and worked calculations
Example 1 — Employee paid in BTC
An employee contractually agrees to a £2,500 monthly salary to be paid in BTC. On payday BTC spot rate = £50,000. BTC amount = £2,500 / £50,000 = 0.05 BTC. Employer records gross pay £2,500, deducts PAYE and NICs in GBP and reports RTI. If employer immediately converts 0.05 BTC to GBP, the bank receipt must match the payslip GBP after conversion fees; any small difference is an expense or adjustment.
Example 2 — Supplier paid in ETH for services
A UK Ltd pays a contractor 1 ETH when ETH = £2,000. The company records revenue/expense as £2,000 and treats it as deductible expense for corporation tax. If company holds the ETH and sells later at £3,000, corporation tax on chargeable gains applies to the £1,000 uplift.
Frequently asked questions
Frequently asked questions
Are employers required to issue a payslip when paying in crypto?
Yes. Payslips must show the GBP equivalent of pay and statutory deductions. Record the exchange rate and timestamp used to compute the GBP figures.
How should exchange rates be evidenced for HMRC?
Use a reputable exchange, API logs or screenshots showing the rate and timestamp. Maintain an internal policy naming the chosen sources.
Do employees pay Capital Gains Tax when they sell crypto received as salary?
Yes, CGT can apply on subsequent disposal. The base cost for CGT will generally be the GBP value included as taxable income when received.
Is payroll reporting different for contractors paid in crypto?
Contractors who are self-employed are responsible for their own tax. Payments to businesses or contractors should be recorded as business expenses; operate PAYE only where employment status requires it.
Does VAT apply when customers pay in crypto?
VAT applies to the underlying supply (goods/services). The fact the customer pays in crypto does not generally change VAT liability. Invoice must show the GBP equivalent and VAT where applicable.
Can an employer pay only part of salary in crypto?
Yes, provided contractual terms permit and both parties document the arrangement. PAYE must be calculated on the GBP equivalent of the crypto portion.
What happens if the crypto price collapses after payment?
Tax has already fallen due on the GBP equivalent at the time of payment. Subsequent price falls do not reduce the tax liability; the employee or supplier may realise a capital loss on disposal, depending on circumstances.
Your next step:
- Review contracts and obtain written consent for any crypto salary arrangements.
- Implement a documented exchange-rate policy and payroll reconciliation process.
- If uncertain, consult a UK tax adviser with HMRC crypto experience and keep full records for at least 6 years.