What Is HMRC’s View on Crypto Mining Income

At Towerstone, we provide specialist crypto accountancy services for UK investors and businesses. We have written this article to explain how mining income is treated, helping you understand the tax and reporting position.

Crypto mining is one of the earliest forms of crypto activity, yet in my opinion it remains one of the most misunderstood from a UK tax perspective. Many people started mining years ago as a hobby. A spare computer. A graphics card running overnight. Coins appearing slowly in a wallet. It did not feel like income and it certainly did not feel like a business.

From experience, that is exactly why mining income causes so many problems later. People do not think about tax at the time. Then prices rise, wallets are reviewed, or HMRC gets in touch, and suddenly mining income becomes a serious compliance issue.

In this guide, I am going to explain clearly how HMRC views crypto mining income in the UK, when it is taxed, what type of tax applies, how HMRC decides whether mining is a hobby or a trade, and what expenses you may be able to claim. I will also share the most common mistakes I see and what I advise people to do when mining activity has been ongoing for some time.

HMRC’s Starting Position on Crypto Mining

HMRC does not treat crypto mining as a special or exempt activity.

It applies existing UK tax principles to mining in the same way it would apply them to any other activity that generates value.

Official guidance on cryptoassets, including mining, is published by HM Revenue & Customs and made available through GOV.UK.

The key point is this. Mining can give rise to taxable income. The only real question is how that income is taxed.

What Crypto Mining Looks Like to HMRC

HMRC focuses on substance rather than technology.

It does not matter whether you are mining Bitcoin, Ethereum Classic, or another proof of work token. HMRC looks at:

Whether you are receiving crypto as a reward

Whether that reward has value

Whether the activity is organised and ongoing

Whether it looks commercial

From experience, people often assume HMRC needs to understand the technical details of mining. It does not. It only needs to understand that something of value is being received.

Is Crypto Mining Taxable in the UK?

Yes, crypto mining is taxable in the UK in most cases.

However, the type of tax depends on the nature of the activity.

HMRC distinguishes between:

Mining as a hobby or occasional activity

Mining carried out as a trade or business

This distinction matters because it affects:

Whether income tax or trading tax applies

Whether National Insurance is due

What expenses can be claimed

How losses are treated

Mining as a Hobby or Miscellaneous Income

In many cases, especially where mining started casually, HMRC treats mining income as miscellaneous income rather than trading income.

This is common where:

Mining is small scale

Activity is irregular

There is no commercial structure

Profit is not the primary driver

Costs outweigh income

Equipment is basic or repurposed

From experience, most people mining at home fall into this category, even if they mine regularly.

Tax Treatment of Hobby Mining Income

If mining income is treated as miscellaneous income:

Income tax applies on the value of crypto received

The value is measured in pounds at the time of receipt

National Insurance usually does not apply

Allowable expenses are very limited

The income is usually declared on the miscellaneous income section of the self assessment return.

In my opinion, this surprises many people because the income feels passive, but HMRC does not see it that way.

Mining as a Trade

Mining can be treated as a trade if it is organised, commercial, and carried out with a clear intention to make a profit.

Indicators of trading include:

Significant investment in mining equipment

Dedicated premises or space

High electricity usage

Ongoing and systematic activity

Regular monitoring and optimisation

Clear profit motive

Business like record keeping

From experience, HMRC sets a fairly high bar before it accepts that mining is a trade, but when that bar is met, the consequences are significant.

Tax Treatment When Mining Is a Trade

If mining is treated as trading income:

Income tax applies on profits

Class 2 and Class 4 National Insurance may apply

Allowable business expenses can be claimed

Losses may be available for relief

The activity must be reported as self employment

In my opinion, this treatment is more flexible but also more complex and carries more compliance responsibility.

How Mining Income Is Valued

Regardless of whether mining is a hobby or a trade, HMRC expects mining rewards to be valued at the time they are received.

This means:

You take the market value in pounds

At the date and time the reward is credited

Using a reasonable exchange rate

That value is treated as taxable income.

It does not matter whether you immediately sell the crypto or hold it.

From experience, this is one of the hardest points for people to accept, especially when prices later fall.

What Counts as Receipt of Mining Income?

Mining income is usually treated as received when:

The reward is credited to your wallet

You have control over the crypto

You can transfer or sell it

If rewards are locked or subject to conditions, the position can be more nuanced, but in most standard mining setups, income arises as soon as the reward is credited.

What Happens When You Later Sell Mined Crypto?

Mining income is taxed in two stages.

First stage
Income tax applies when the crypto is received.

Second stage
Capital gains tax may apply when the crypto is later sold, swapped, or spent.

The base cost for capital gains purposes is the value that was taxed as income.

From experience, people often forget the second stage entirely, which leads to underreported gains.

Capital Gains Tax on Mined Crypto

When you dispose of mined crypto:

You calculate the gain or loss

Based on disposal value minus base cost

Using UK pooling rules

If the crypto has increased in value since it was mined, capital gains tax may apply.

If it has decreased, a capital loss may arise.

This two stage tax treatment is one of the most important concepts to understand.

Are Mining Expenses Allowable?

This depends heavily on whether the activity is treated as a trade.

Hobby Mining Expenses

If mining is treated as miscellaneous income, allowable expenses are very limited.

HMRC usually allows only expenses incurred wholly and exclusively to generate that income.

In practice, this often means:

Pool fees

Transaction fees

Electricity, equipment, and home costs are often disallowed in hobby cases.

From experience, this is a major point of frustration.

Trading Mining Expenses

If mining is treated as a trade, allowable expenses are broader.

These may include:

Electricity costs

Mining equipment

Repairs and maintenance

Internet costs

Pool fees

Software

A proportion of home costs

Professional fees

Capital allowances may apply to equipment rather than immediate deduction.

In my opinion, the ability to claim expenses is one of the main reasons people prefer trading treatment, but misclassifying activity to access expenses is risky.

Mining Through a Limited Company

Some people mine through a limited company.

In this case:

Mining rewards are treated as company income

Corporation tax applies

Expenses are claimed under company rules

Capital allowances apply to equipment

Capital gains may arise on disposal of crypto

From experience, company mining can make sense at scale but adds complexity and cost.

VAT and Crypto Mining

VAT does not usually apply to crypto mining income.

HMRC generally treats mining rewards as outside the scope of VAT because there is no identifiable customer.

This is one area where people often worry unnecessarily.

Record Keeping for Mining Activity

From experience, record keeping is essential.

You should keep:

Dates rewards were received

Amounts of crypto

Pound value at receipt

Exchange rate used

Pool statements

Wallet addresses

Electricity usage data

Equipment purchase invoices

Without records, defending a tax position becomes very difficult.

What If You Have Not Declared Mining Income?

This is extremely common.

Many people mined for years without realising it was taxable.

HMRC allows voluntary disclosure and amended returns.

Correcting the position usually involves:

Reconstructing mining rewards

Valuing rewards at receipt

Declaring income correctly

Paying tax and interest

Claiming any available reliefs

From experience, coming forward voluntarily leads to far better outcomes than waiting for HMRC to ask.

Common Mistakes I See With Mining Tax

From experience, the most common issues include:

Assuming mining is tax free

Only declaring income when crypto is sold

Ignoring small but frequent rewards

Valuing rewards incorrectly

Claiming expenses that are not allowable

Mixing personal and business mining

Losing historic data

These mistakes often compound over time.

How HMRC Decides Whether Mining Is a Trade

There is no single test.

HMRC looks at the overall picture, including:

Scale

Frequency

Organisation

Commercial intent

Profitability

In my opinion, it is better to be realistic and cautious than aggressive and wrong.

My Honest View From Experience

Crypto mining feels technical, but tax treatment is not about technology.

From experience, the biggest problems arise when people assume mining sits outside the tax system because it feels different.

HMRC treats mining like any other activity that generates value.

In my opinion, the safest approach is to assume mining income is taxable unless advised otherwise and to plan accordingly.

Practical Advice From Experience

If you are mining or have mined crypto, my advice is:

Assume rewards are taxable income

Track rewards from day one

Set aside funds for tax

Do not rely on price increases to cover tax

Separate hobby and commercial activity clearly

Seek advice if activity grows

Address historic issues sooner rather than later

Good habits early prevent serious problems later.

Where this leaves you

So what is HMRC’s view on crypto mining income?

HMRC views mining rewards as taxable income, with the exact treatment depending on whether the activity is a hobby or a trade.

Income tax usually applies when rewards are received and capital gains tax may apply later when those rewards are disposed of.

From experience, mining tax issues are manageable if addressed early and painful if ignored.

Understanding HMRC’s framework and working within it turns mining from a tax risk into a predictable and controllable part of your financial picture.

If you would like to explore related investing and crypto guidance, you may find What is the best accounting software for tracking crypto transactions and What is the difference between crypto income and capital gains useful. For broader investing context, visit our stocks and shares guidance hub.