Introduction
The rise of crypto cashback has made spending with cryptocurrency even more rewarding. Whether it’s earning Bitcoin when you shop or receiving cashback rewards through a crypto card, this trend has gained traction among UK crypto users. However, with financial benefits come tax implications. Understanding how HMRC treats crypto cashback is essential to ensure compliance and avoid unexpected tax liabilities.
This article explores how crypto cashback works and whether it is taxable under UK tax laws.
What is Crypto Cashback?
Crypto cashback refers to rewards received in cryptocurrency when making purchases using crypto debit or credit cards. Instead of earning traditional cashback in fiat currency, these programs reward users with digital assets such as Bitcoin, Ethereum, or native platform tokens.
Crypto cashback programs generally operate in two ways:
-
Fiat-based cards: Users top up their cards with GBP (or another fiat currency) and receive cashback in crypto upon making purchases.
-
Crypto-based cards: Users fund their cards with crypto, which is converted into fiat at the time of purchase, earning cashback in digital assets.
Popular crypto cashback cards include those from Crypto.com, Binance, and Wirex, each offering different reward structures based on spending tiers or staking requirements.
Is Crypto Cashback Taxable in the UK?
HMRC has not issued specific guidance on the tax treatment of cashback received in crypto. However, its general stance on cashback rewards suggests that crypto cashback may not be considered taxable income, provided it is not earned in the course of a financial trade.
When Crypto Cashback is NOT Taxable
According to HMRC’s Statement of Practice 4/97:
A sum received by an ordinary retail customer as consideration for purchasing goods or services is not regarded as taxable income.
This suggests that crypto cashback rewards, similar to fiat cashback, are not taxable income if earned as a regular consumer.
When Crypto Cashback is Taxable
Crypto cashback may be considered taxable income if:
-
It is received as part of a trade (e.g., if the individual is a financial trader in cryptoassets).
-
The rewards are issued as part of an employment benefit or business-related activity.
In such cases, crypto cashback would be subject to income tax and reported accordingly.
Capital Gains Tax Considerations
Even if crypto cashback is not taxed as income, capital gains tax (CGT) may still apply when disposing of the rewarded crypto.
Selling or Trading Crypto Cashback
When users eventually sell, exchange, or spend their cashback rewards, it constitutes a taxable disposal for CGT purposes. The taxable gain is calculated as:
Capital Gain = Disposal Proceeds – Acquisition Cost
Since HMRC has not provided guidance on the cost basis for cashback rewards, there are two possible interpretations:
-
Cost Basis as Nil: If cashback is treated as a reward without a purchase cost, its cost basis is considered zero, meaning the entire disposal amount is taxable as a gain.
-
Market Value at Receipt: Some tax professionals argue that the acquisition cost could be the fair market value of the crypto at the time it was received.
Given this uncertainty, it is advisable to consult a tax professional when reporting crypto cashback disposals.
Topping Up a Crypto Cashback Card
If a user loads a cashback card with crypto (instead of fiat), HMRC may treat this as a taxable disposal of the crypto used to fund the card. This means:
-
If the crypto increased in value since acquisition, capital gains tax may apply.
-
If the crypto decreased in value, a capital loss can be recorded.
Tracking and Reporting Crypto Cashback
To remain tax compliant, users should maintain records of:
-
The value of cashback rewards at the time of receipt.
-
Disposals of cashback rewards (sales, exchanges, or spending).
-
Topping up crypto-backed cards (if applicable).
Crypto tax software like Recap can automate transaction tracking, ensuring accurate tax reporting.
Conclusion
Crypto cashback rewards are unlikely to be taxable as income unless received as part of a trade or business. However, capital gains tax may apply when disposing of the rewarded crypto. Additionally, topping up crypto cashback cards with crypto may trigger taxable disposals.
If you have any questions or require further assistance, our team at Block3 Finance can help you.
Please contact us by email at inquiry@block3finance.com or by phone at 1-877-804-1888 to schedule a FREE initial consultation appointment.
You may also visit our website (www.block3finance.com) to learn more about the range of crypto services we offer to startups, DAOs, and established businesses.