Are there clear rules for using Bitcoin and other crypto for everyday payments, or will a freelancer face unexpected tax bills? Many contractors worry about whether HMRC treats crypto payments as income, capital disposals or something else entirely. This guide presents direct, practical rules and worked examples for Using Crypto for Payments in England so a freelancer can decide, record and report with confidence.
Key takeaways: what to know in one minute
- HMRC usually treats crypto received as payment as taxable income at the market value on receipt for self-employed workers and contractors.
- Spending crypto can trigger capital gains tax (CGT) where the crypto had increased in value since acquisition; use market value in GBP at disposal.
- Keep robust records: dates, values in GBP, wallet addresses, transaction IDs and invoices — HMRC expects clear evidence.
- Use Self Assessment to declare crypto income under self-employment, and report disposals on the Capital Gains pages where applicable.
- Common mistake: failing to separate income recognition from subsequent capital gains on the same crypto; both can apply.
How HMRC treats bitcoin payments for freelancers
HMRC guidance treats cryptoassets as property rather than currency. For a freelancer paid in Bitcoin or another cryptoasset, the receipt is ordinarily treated as trading income (if the freelancer is self-employed) or as miscellaneous income depending on the working arrangement.
Key rules:
- For self-employed workers or sole traders accepting crypto as payment, the value in GBP at the time of receipt is taxable as income and should be entered into turnover when completing Self Assessment.
- If the client pays gross and the freelancer later holds the crypto, any change in value between receipt and disposal may give rise to a separate capital gain or loss, taxed under CGT rules.
- Where an employer pays salary in crypto, PAYE rules apply: the cash equivalent at the time of payment must be reported and taxed through payroll.
Practical example:
- Client pays 0.05 BTC when BTC is £40,000 — income recorded = £2,000. If BTC later rises to £45,000 and the freelancer spends that 0.05 BTC when it equates to £2,250, the additional £250 is a capital gain on disposal.
Sources and further HMRC reading: HMRC: Tax on cryptoassets and the specific guidance on trading and capital gains.
When it is trading income vs payment in kind
- If the freelancer routinely accepts crypto as part of their revenue stream, treat receipts as trading income.
- If a contractor receives a one-off crypto payment that is not connected to a trade, HMRC may treat it as other taxable income.
- The substance of the arrangement matters. Document agreements with clients to show whether the payment is for services or a non-trading event.
Declaring crypto income on your Self Assessment
The Self Assessment presents two likely places to declare crypto receipts:
- Tax return self-employment pages (if trading): include the GBP value of crypto receipts in turnover.
- Other income pages: for irregular or non-trading crypto receipts.
Step-by-step:
- Convert each crypto receipt to GBP at the time of receipt using a reliable exchange rate or price index and record the source.
- Enter the total GBP value as turnover on the appropriate Self Assessment schedule for the tax year in which the receipt occurred.
- If expenses are allowable, subtract them in the usual way (see deductions section below).
- Separately calculate any disposals during the tax year for CGT reporting and complete the capital gains pages where gains exceed allowances.
Helpful HMRC resource: HMRC: Self Assessment.
Examples of conversions and rate selection
- Use a consistent method for converting crypto to GBP. HMRC accepts market rates from reputable exchanges, but the method must be documented and reproducible.
- For frequent micro-payments, consider using a daily average rate to reduce volatility noise and administrative burden, provided the method is documented.
Calculating capital gains when spending or selling bitcoin
Spending crypto (e.g. buying a laptop with Bitcoin) is a disposal for CGT purposes. The disposal proceeds are the market value in GBP at the time of the spending.
Calculation steps:
- Identify acquisition cost (in GBP) for the units spent — if received as income earlier, the acquisition cost will normally be the GBP value recorded when received.
- Calculate disposal proceeds as the GBP value at time of spending or sale.
- Gain = disposal proceeds − allowable cost (and any allowable acquisition costs).
- Apply any allowable exclusions or the annual CGT exemption; report through Self Assessment if gains exceed exempt thresholds.
Special rules and pooling:
- For assets acquired at different times, UK rules use HMRC pooling for cryptoassets (similar to shares): same-day, 30-day and Section 104 pooling rules apply. This affects which acquisition cost is matched to a disposal.
- Where crypto was acquired as payment (income), that income value becomes the base cost for any later CGT calculation on disposal.
Worked example:
- Received 0.05 BTC as payment when BTC = £40,000 → income recorded £2,000 (this becomes base cost).
- Later sold or spent that 0.05 BTC when BTC = £50,000 → disposal proceeds £2,500, capital gain £500.
Record-keeping and evidence HMRC expects from contractors
HMRC requires accurate and contemporaneous records. For Using Crypto for Payments, keep the following for at least five years after the 31 January submission deadline of the relevant tax year:
- Date and time of receipt and disposal of crypto payments.
- Quantity of crypto received or spent (e.g. 0.05 BTC).
- GBP value at the date and time of each transaction and the source used to determine that value.
- Wallet addresses and transaction IDs (hashes) for receipts and payments.
- Copies of invoices, contracts, and client communications showing the purpose of the payment.
- Evidence of transfer fees, exchange fees and any brokerage costs related to the acquisition or disposal.
Practical record-keeping tips:
- Use an exportable ledger or accounting software that can associate a GBP value with each transaction and store exchange rate sources.
- Keep screenshots or CSV exports from exchanges at the time of conversion where possible; include API logs for automated receipts.
- Retain a reconciliation spreadsheet that maps each crypto receipt to the invoice and GBP amount reported on Self Assessment.
Reference: HMRC: Cryptoassets for individuals.
Allowed deductions and accounting for crypto expenses
Expenses that are allowable against self-employed crypto income follow the same rules as standard trading expenses:
- Allowed: costs wholly and exclusively for the business, such as hardware wallets, fees for payment processors, crypto-specific accounting software subscriptions, and reasonable portions of phone/internet where used for business.
- Not allowed: personal expenses or capital items claimed as revenue costs. Capital items should be capitalised and may be subject to capital allowances.
Treatment of transaction fees:
- Exchange or network fees that directly relate to receiving or converting crypto can be treated as deductible business expenses when calculating taxable trading profit.
- For capital gains calculations, the fees incurred when disposing of an asset may be deducted from disposal proceeds when computing the gain.
Practical examples:
- Fee for converting received BTC to GBP on an exchange = allowable expense against turnover if directly connected to providing services.
- Purchase of a laptop used 70% for business and paid with crypto = capital cost; claim 70% via capital allowances rather than direct revenue expense.
Common pitfalls: avoiding mistakes in crypto tax filings
Avoid these frequent errors:
- Failing to record GBP values on receipt — this creates ambiguity for both income and CGT calculations.
- Mixing personal and business wallets — using the same wallet for personal and business payments complicates matching and pooling.
- Treating subsequent appreciation as income — only the GBP value on receipt is income; later appreciation is usually CGT.
- Ignoring pooling rules — misapplying acquisition matching can under- or overstate gains.
- Not using consistent conversion methodology — inconsistent rates invite HMRC queries.
Defensive steps:
- Maintain separate wallets or clear tagging for business receipts.
- Use accounting tools that produce audit-ready exports.
- Consider professional advice where volumes or values are significant.
Strategic guidance: when to accept crypto payments and when not to
Benefits / when to apply ✅
- Access to global clients who prefer crypto.
- Faster settlement for international transactions compared with bank transfers.
- Potential for lower fees depending on payment rail.
Risks / errors to avoid ⚠️
- Tax complexity: accepting crypto creates a two-stage tax exposure (income and later CGT).
- Volatility: holding crypto can create unexpected gains or losses to report.
- Regulatory uncertainty: compliance with AML and invoicing rules must be considered.
Comparative table: payment rails and tax implications
| Payment method |
Typical tax event |
Speed |
Typical fees |
Practical note |
| On-chain BTC payment |
Income on receipt; possible CGT on disposal |
Slow (minutes to hours) |
Variable network fees |
Use for high-value payments with clear timestamping |
| Layer-2 (e.g. Lightning) |
Same tax treatment; evidence may be harder to link |
Very fast |
Very low |
Keep invoices and routing data for audit trail |
| Payment processor (e.g. crypto-to-fiat) |
Income recorded in GBP on conversion; processor may withhold conversion |
Fast |
Processor fee + exchange spread |
Simplifies GBP reporting but costs more |
| Stablecoin payment |
Income on receipt at GBP value; CGT applies on later disposal |
Fast |
Low |
Stable value simplifies income reporting |
Flow: accepting, recording and reporting crypto payments
Step 1 → Step 2 → Step 3 → ✅ File correctly
- Step 1: Agree with the client the payment terms — specify whether the GBP-equivalent or the crypto amount is the contractual figure, and which party bears fees.
- Step 2: Record receipt with timestamp, wallet txid and GBP value using a named rate source (exchange timestamp or index).
- Step 3: Decide whether to convert to GBP immediately (reduces CGT volatility) or hold (creates CGT events on later disposals). Convert with documented proof.
- File correctly: Include income in Self Assessment and separately calculate CGT where disposals occur.
Payment flow for freelancers accepting crypto
📄 Invoice issued → 🔗 Client pays in crypto → 🧾 Record GBP value & txid → 💷 Convert or hold → 🧾 Report income; calculate CGT on disposal
FAQ: frequently asked questions
How should a freelancer value crypto income for Self Assessment?
Use the GBP market value at the time of receipt. Document the exchange or price index used and keep supporting evidence such as screenshots or CSV exports.
Do payroll rules change if an employer pays salary in crypto?
No. If the payment is salary, PAYE and National Insurance rules apply; report the cash equivalent at the time of payment and operate payroll deductions.
Is spending crypto the same as selling for tax purposes?
Yes. Spending crypto on goods or services is a disposal and treated the same as selling for CGT calculations; the disposal proceeds are the GBP value at the time of spending.
How long must crypto records be kept for HMRC?
Keep records for at least five years after the 31 January submission deadline following the tax year. In practice, retain records for longer if disputes are possible.
Can transaction fees be deducted?
Yes. Network and exchange fees connected to receiving or disposing crypto can be deducted as business expenses or allowed against disposal proceeds for CGT purposes.
What if a client pays in a stablecoin — is tax treatment different?
No. Receipt of a stablecoin is still taxable in GBP at the market value when received; later disposals may create CGT events if the stablecoin changes value relative to GBP.
Your next step:
- Identify all crypto payments received in the tax year and record GBP values and txids now.
- Choose and document a consistent conversion methodology and maintain exports/screenshots from the rate source.
- If unsure about significant values, seek specialist tax advice or use a crypto accounting tool that exports HMRC-ready reports.