On 31 March 2021, the UK tax authorities (HMRC) consolidated their existing guidance on crypto-asset taxation for businesses and individuals and published new guidance on the taxation of “staking” activities. This is contained in a new manual (guidance for HMRC officers which is publicly available online but which does not have the force of law). The new guidance on staking activities is almost identical to the existing guidance on mining, but the fact that HMRC have introduced separate guidance on it suggests that the approaches may diverge in future. Indeed, HMRC have previously indicated that the purpose of replacing their previous guidance (which was in the form of policy papers) with the manual would allow for a more flexible, responsive framework in a fast-moving sector.

Crypto-assets and Networks

Many crypto-asset networks (such as Bitcoin or altcoin) are controlled through a network of users who are responsible for verifying transactions or issuing new cryptocurrency.

This network mechanism is often referred to as a ‘consensus’ because a sufficient proportion of the network must agree to a transaction or technological change before it can go ahead.

For example, if A wishes to send 500 tokens to B, it must first be verified that A does indeed hold that many tokens. If the network agrees that this is the case, the transaction is added to the distributed ledger.

Staking v Mining activities

The most well-known consensus system is Proof of Work, which is used by Bitcoin (amongst others). Here, the right to add a new entry to the distributed ledger is only available to the first person to solve a randomly generated complex cryptographic puzzle. The person with that right will be entitled to any fees available for including transactions in that entry and they will be allocated a quantity of new tokens that are released into circulation.

Staking has developed as an alternative to Proof of Work due to the significant amount of energy and computing power that the system requires and the risks that this creates to the functioning of the crypto-asset network. Under the Proof of Stake, mining power is weighted to the user’s proportion of coins held (or their ‘stake’), rather than them having the computer power to solve a puzzle before anyone else does.

Taxation of Businesses

According to the new guidance, the taxation of staking activity by businesses will depend on whether it amounts to a taxable trade (with the crypto-assets as trade receipts). This will depend on a range of factors:

  • degree of activity
  • organisation
  • risk
  • commerciality

If the staking activity does not amount to a trade, the pound sterling value (at the time of receipt) of any crypto-assets awarded for successful staking will generally be taxable as income (miscellaneous income), with any appropriate expenses reducing the amount chargeable.

If the activity does amount to a trade, any profits must be calculated according to the relevant tax rules and taxed accordingly (e.g. the under corporation tax or business income tax regimes).



Alistair Craig is a partner in Baker McKenzie's London office. Before joining the Firm in 2013, Alistair worked in the transaction tax and international tax services groups of a Big 4 accounting firm for many years. Alistair advises on all areas of UK corporate tax, with a particular focus on cross-border M&A work. This includes tax structuring, tax due diligence and post-transaction integration. He also counsels clients on general international tax advisory matters, including complex group reorganisations, cross-border financing and supply chain structures.