Do I Pay Tax on Crypto Used to Buy Goods or Services?

Introduction

Using cryptocurrency to buy everyday items or services is becoming more common, from paying for coffee with Bitcoin to purchasing online subscriptions using digital assets. However, while this may seem like a convenient way to spend your crypto, HMRC still treats these transactions as taxable events.

When you use cryptocurrency to buy something, HMRC views it as if you have disposed of the asset, meaning you may owe Capital Gains Tax (CGT) on any increase in value since you first acquired it. This article explains when and how tax applies when spending crypto and how to stay compliant with UK tax rules.

How HMRC Views Crypto Transactions

HMRC does not consider cryptocurrency to be legal tender or currency. Instead, it treats it as an asset similar to shares, property, or other investments.

This means that any time you dispose of crypto whether by selling it, exchanging it for another token, or spending it on goods or services it could trigger a Capital Gains Tax liability.

In HMRC’s eyes, using crypto to make a purchase is equivalent to selling it at its market value on that day and immediately using the proceeds to pay for the item.

When You Might Owe Capital Gains Tax

You will generally owe CGT if:

• The cryptocurrency you use to make a purchase has increased in value since you acquired it.

• The total of your annual gains (including other assets) exceeds the CGT allowance of £3,000 (2024 25 tax year).

For example:

• You bought 1 Ethereum for £1,000.

• You later spend it to buy a laptop worth £2,500.

• The Ethereum’s value has risen by £1,500 since you bought it.

You have made a capital gain of £1,500, which must be included in your CGT calculation. Even though you did not sell the crypto for cash, the transaction is still treated as a disposal.

If your total capital gains for the year exceed your annual allowance, the taxable amount will be charged at:

• 10% if you are a basic-rate taxpayer.

• 20% if you are a higher- or additional-rate taxpayer.

Buying Goods with Crypto Is a Disposal

Every time you use crypto to make a purchase, HMRC considers it a separate disposal. This means you must keep detailed records of:

• The amount of crypto used.

• The date of the transaction.

• The market value of the crypto in pounds sterling at that date.

• The original cost of acquiring that crypto.

You then calculate your gain or loss for each transaction. This can become complicated if you make frequent crypto purchases, as each one must be reported individually if your total gains exceed the threshold.

Example Scenario

Olivia bought 0.5 Bitcoin in 2021 for £10,000. In 2025, it is worth £15,000. She decides to use the Bitcoin to buy furniture worth £15,000.

HMRC treats this as a disposal:

• Market value at the time of the transaction: £15,000.

• Purchase cost: £10,000.

• Capital gain: £5,000.

After deducting her £3,000 CGT allowance, Olivia must pay tax on £2,000. If she is a higher-rate taxpayer, her CGT bill would be £400 (20% of £2,000).

Even though she did not sell her Bitcoin for cash, the purchase of goods using crypto still triggered a tax event.

When You Do Not Pay Tax

You do not have to pay tax when:

• The crypto you used has not increased in value since you bought it.

• Your total capital gains for the year are below the £3,000 allowance.

• You are transferring crypto between your own wallets (no disposal occurs).

• The crypto is used to buy something on behalf of your employer or business, and the purchase is accounted for correctly within your company’s tax records.

However, even if no tax is due, you should keep records of all crypto transactions, as HMRC requires proof of cost and market value if asked.

What About Businesses Accepting Crypto?

If you run a business that accepts cryptocurrency as payment, the situation is different. HMRC treats the value of the crypto received as income at the market value on the day of the transaction.

This means:

• The amount received counts as business revenue for Income Tax or Corporation Tax purposes.

• If you later sell or exchange that crypto and it has changed in value, you may also owe Capital Gains Tax or Corporation Tax on the gain.

In short, crypto received by a business is taxed as income first, and any later gains or losses are also taxable.

Keeping Accurate Records

HMRC expects anyone who buys, sells, or spends cryptocurrency to keep detailed records of every transaction. You should record:

• The type and amount of crypto used.

• The date and time of each transaction.

• The market value in pounds sterling at the time.

• The original acquisition cost (known as the “base cost”).

• The transaction ID and wallet address.

If you use crypto regularly, accounting software or specialist crypto tax tools can help track your transactions and calculate gains or losses automatically.

Reporting Crypto Transactions to HMRC

If your crypto activity triggers a taxable gain, you must report it to HMRC:

• Through your Self Assessment tax return, or

• Using HMRC’s Capital Gains Tax real-time reporting service.

For most crypto transactions, you have until 31 January following the end of the tax year to report and pay any tax owed.

For property-related crypto disposals (rare but possible), payment must be made within 60 days.

Common Mistakes to Avoid

• Assuming spending crypto is tax free because you did not “sell” it.

• Failing to record market values at the time of transactions.

• Mixing personal and business crypto transactions without clear records.

• Forgetting to report crypto gains because they are under the income threshold CGT and income are separate taxes.

The Role of an Accountant

An accountant or crypto tax specialist can help you:

• Calculate gains or losses on crypto transactions.

• Ensure all disposals, including purchases, are reported correctly.

• Use available allowances and deductions to reduce your tax bill.

• Prepare accurate records for HMRC compliance.

Professional advice is especially useful if you make frequent crypto transactions or operate a business that uses digital currencies.

Conclusion

Yes, you may have to pay tax when you use cryptocurrency to buy goods or services, as HMRC treats such spending as a disposal for Capital Gains Tax purposes. You will owe tax if the crypto has increased in value since you acquired it and your total gains exceed the annual allowance.

To stay compliant, keep detailed records of every transaction, track market values, and report any taxable gains to HMRC. If you are unsure how the rules apply to your situation, seek advice from an accountant or crypto tax expert to ensure you pay only what you owe.