Given the popularity of Bitcoin investment over the last few years, it’s no wonder small business owners are considering investing in Bitcoin… and if possible, with company funds.
But just how possible is this, and what are the tax implications if you want to use your company to trade in cryptocurrency?
Well, before we start, please understand that crypto is elevated risk, so make sure you know what you are getting into before getting involved. We can offer no advice when it comes to a small business investing in Bitcoin, or when to sell or offer an opinion on whether you should get involved at all.
There are obvious rewards and risks. And it’s this risk which is possibly leading you to wonder whether your limited company can buy Bitcoin, rather than you using your own personal funds.
Can a small business invest in bitcoin? A small business can invest in cryptocurrency or Bitcoin. But HMRC says you must distinguish between trading and non-trading activity. This distinction affects the treatment of cryptocurrency or Bitcoin in UK tax law and how a limited company accounts for it.
Throughout this guide to small businesses investing in Bitcoin, we answer some of the more basic questions around cryptocurrency from a small company perspective.
We offer no opinion on whether it is right or wrong for your small limited company to buy Bitcoin or other forms of cryptocurrency.
Can a company trade in cryptocurrency?
Yes, a company can trade in cryptocurrency such as Bitcoin. However, when you trade cryptocurrency through your limited company the rules are slightly different to personal trades.
When a company disposes of an asset including digital assets such as Bitcoin any gain is subject to corporation tax.
Don’t forget you still need to find a way of getting that profit out of the company so you will need to pay a salary or dividend on which you will have personal income tax to pay on top of the corporation tax.
If you don’t do that then it would be classed as a Directors Loan in which case things can get problematic very quickly.
Even if you were to transfer that gain into buying other crypto HMRC (HM Revenue and Customs) still considers the original disposal so you will need to pay tax on the gains.
If this were a personal transaction you would pay capital gains tax after using your £12,300 annual allowance.
Corporation tax on Bitcoin and cryptocurrency
For any tax calculation, you must work the profit you’ve made from a transaction.
If your small business bought £5,000 of cryptocurrency and sold for £50,000 you will have made a gain of £45,000 that was subject to corporation tax at 19% (2022).
You will of course then need to consider how you are going to extract that profit from the business as you will also end up paying personal tax on the income left after paying corporation tax.
What about VAT on Bitcoin?
For the buying, selling, transfer, and conversion of Bitcoin to a standard currency, no VAT is payable.
How to buy crypto with a business account
If the purpose of buying Bitcoin is for your business, then it makes total sense to use your business account to buy crypto.
But if the purchase is for personal usage, then we would not recommend using the business account to buy Bitcoin, as you should instead use a personal bank account.
If you do decide to use business funds in this way, it will be considered a loan from the company or income. Either way, there would be taxes that need to be paid.
If you’ve never bought Bitcoin before you will need to set up an account with a cryptocurrency exchange. Like any traditional brokerage account, they let users transfer funds into the account by bank transfer and place orders on their order book.
Make sure if buying Bitcoin on behalf of the business that you create a corporate account under the company name. This is so the asset and account belong to your business.
What is the best business bank account for cryptocurrency?
Traditional high street banks are risk averse. Opening a business bank account for crypto can therefore be a challenge in the UK. I
f you wish to start buying crypto and use it, then there are some banks that are looking to make gains in this area while the traditional high street banks ponder getting involved.
Crypto businesses need a business banking account for conducting multiple day-to-day activities.
Crypto Buyers Club have created a list of the best crypto business bank accounts in the UK.
- Xace
- Cashaa
- Revolut
- Orounda
- BCB Group
What is the best crypto exchange for small business
Crypto exchanges work with all business sizes. However, small business features, pricing, setup, and installation differ from businesses of other sizes.
G2.com offers a list of the best crypto exchange for small business based on user satisfaction. A product’s satisfaction score is calculated by an algorithm that factors in real-user satisfaction ratings from review data.
Streamline the selection process and quickly find the best crypto exchange for small business based on the experience of your peers.
We have supplied the top 10 best crypto exchange for small business from that list on 25 June 2022.
- ZenGo
- CoinDCX
- Coinbase Exchange
- Binance
- UPHOLD
- NiceHash
- LocalBitcoins
- eToro
- Crypto.com
- Gate.io
More FAQs on small businesses investing in bitcoin
Can my limited company buy Bitcoin?
Yes, a limited company can buy Bitcoin. HMRC says it is important to distinguish between trading and non-trading activity. This distinction will affect the treatment of cryptocurrency in UK tax law.
If you are buying the Bitcoin as a business investment, it will be recorded in the balance sheet of your limited company as an intangible asset. If transactions in cryptocurrencies are non-trading, they are subject to capital gains tax at disposal.
This is true for both individuals and businesses. For individuals, this will also need to be reported in their self-assessment tax return.
No tax will be due for holding cryptocurrencies without disposal.
However, the exchange of one cryptocurrency for another will also be considered disposal. Tax on this cryptocurrency exchange in the UK will include capital gains tax.
If you are buying the Bitcoin as you are trading Bitcoin through a limited company, then it will be treated as a profit and loss transaction. Any profit made during your financial trading period will be subject to corporation tax at 19% (2022).
If activities are considered trading, they will face different cryptocurrency tax in the UK. For individuals, income tax supersedes capital gains tax and applies to profits. For companies, profits (or losses) from cryptocurrency trading are part of the trading profit rather than a chargeable gain.
HMRC also suggests what cost you can deduct from disposal proceeds to calculate capital gain. See the full HMRC guidance here.
Can I buy Bitcoin with my business account?
If the purpose of buying Bitcoin is for your business, then it makes total sense to use your business account to buy it. If the purchase is for personal usage, then we would not recommend using the business account and you should instead use your personal account.
If you use business funds in this way, it will be considered a loan from the company or income. Either way, there would be taxes that need to be paid.
If you’ve never bought bi Bitcoin tcoin before you will need to set up an account with a cryptocurrency exchange. Like any traditional brokerage account, they let users transfer funds into the account by bank transfer and place orders on their order book.
Make sure if buying on behalf of the business that you create a corporate account under the company name. This is so the asset and account belong to your business.
How can small businesses use Bitcoin?
Bitcoin or any other type of cryptocurrency is extremely volatile as a currency. We would only recommend using Bitcoin in your small business if you have done thorough research – we actually wrote a guide for small businesses accepting Bitcoin.
Here are a few suggestions of how small businesses can use bitcoin or other cryptocurrencies. This is not an endorsement that you should be doing this.
- Lower transaction fees – low or no transaction processing fees compared to traditional money.
- Attraction of new customers – give your business an innovative image.
- Acceptance of payments from anyone – online stores for example can accept payment from anyone in the world.
- Potentially lower fraud risk and risk of chargebacks – transactions are irreversible, you don’t have the same worry as credit cards.
Conclusion
Bitcoin is a virtual currency, also known as a cryptocurrency meaning it’s not run by a central bank nor an administrator. Transactions in Bitcoins are recorded on a ledger using cryptography with no intermediary.
Bitcoin was created as a way for people to send money over the internet. The digital currency was intended to supply an alternative payment system that would run free of central control but otherwise be used just like traditional currencies.
However, Bitcoin and other cryptocurrencies have now become a vehicle for investment as big gains have drawn a large audience.
Trading in bitcoin or any cryptocurrency is highly volatile.
There are large gains to be had but as we have also seen recently in the press there are large losses to be suffered.
This is fine if you are sitting on crypto as an investment with no need to sell in a hurry but if you are using it as a liquid asset any day of the week could be boom or bust.
Would you invest in foreign exchange to make money? Dabbling with cryptocurrency is the same. For every winner there are losers. I cannot see past trading in cryptocurrency as anything other than a form of gambling.
Running a small business is a gamble. Do you wish to put that at heightened risk?
Image of Bitcoin in the header via https://pixabay.com/photos/bitcoin-cryptocurrency-digital-2007769/
Jon has been in business since 1999, and in that time worked with more than 300 small business clients. As well as being an accountant, he is also an early adopter of tech, and has helped small businesses to leverage the power of their computer systems by creating software to automate and simplify accounting tasks.
