Do 'Profits before losses" = "Gains in the year, before losses" - UK HMRC query

In the Koinly instruction video how to do HMRC ( The Complete UK Crypto Tax Guide With Koinly - 2022 - YouTube)
the guy I think has made a boo boo

For the box “gains in the year before losses” Koinly calculates Disposable proceeds minus Allowable costs to get the figure. This, however, is the figure for net gains, not gains before losses as the box requires.

so which is right?

as the HMRC report also gives a different number than what is suggested in the video, where he makes “Gains in the year beofre loses as “Disposal proceeds” MINUS " Allowable costs” to get “Gains in the year excluding losses” is this correct?

Coz either the video is wrong or the HMRC report from Koinly is wrong, so which is it?
I just wanna know what to put in box 26 of the self assessment

Also he subtracts ‘lost crypto’ as a loss, and I’m pretty sure you cant do that in the UK

For a start you shouldn’t be putting anything in box 26 for crypto its boxes 14, 15,16,17 and 19 on the form.

If you have been doing margin trading it might be easier to change this option on in the settings tab so these gains are automatically included in the capital gains summary.

tax uk2

For Lost coins you would need to make a negligible value claim to HMRC. Tagging coins as lost in Koinly doesn’t follow HMRC guidance on negligible value claims. You actually have to create a couple of manual transactions to follow the HMRC procedure to change the cost basis of the coins to realise the loss and for your full koinly calculation to still shows that you own them (but they then have zero cost basis)

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sorry I meant box 17 not box 26 sorry, and no I havn’t been doing any margin trading,
all I need to know is what goes in BOX 17

but your query doesn’t seem to help,
If you watch the video the koinly guy puts in NET GAINS in box 17!??

but this seems woefully incorrect?

Watch this video The Complete UK Crypto Tax Guide With Koinly - 2022 - YouTube
Minute 10:40 and you’ll see what I mean

he subtracts Box 16 “Allowable costs” from Box15 "Disposal Proceeds " to get Box 17 “Gains in the year” which I think is totally incorrect?

Is this right?

as the HMRC summary form that Koinly spits out also confirms the method shown in the video is very very wrong

What the guy did in the video is questionable as it depends if the costs on the full report are allowable expenses/costs! (most of the valid ones have normally already be included in the koinly calculation)

To be safe from the full report Number of disposals=Box14, Proceeds from sales=Box15, Acquisition costs=box 16, Profit before loses =box 17, losses=box19 (These numbers should be the same as the HMRC summary form that Koinly spits out).

Now if you know what the expenses on the full report are for and you think they are valid you could get aggressive with trying to reduce reduce you gains. From my understanding to do this correctly you need to add the cost/expense to the value of box 16, subtract it from the value in box 17 and box 19 (think that’s different to the video).

So the big question is what are your cost/expenses for and are you allowed to you deduct them from your gains?

I think it’s more that box 17 is Gains BEFORE losses and yet he takes off a tonne of losses to get a figure! (In this case he puts in Net Gains, into a box which should be gain before losses, , which kind of defeats the point.

I hope Koinly address this asap as tax deadline is in a week or so

Hi @jojo,

Thanks for pointing this issue out. In my view, the approach taken in the Koinly video is NOT correct. The video blogger has made a mistake by entering the numerical difference between Disposal proceeds and Allowable costs in the box for Gains in the year before losses (which is box 17 on HMRC SA108). What he has actually entered is ‘gains in the year after losses’, or ‘net gains’.

When he then enters the Losses amount from the Koinly report in the box for Losses in the year, he ensures that he is double counting the amount of capital losses such that the HMRC program will understate his amount of taxable capital gains and understate his capital gains tax.

What he should have done is used the Profits, before losses figure in the Koinly Report to calculate the amount of Gains in the year before losses (box 17), but he never used this figure!

Having pointed out the error, I will say in the Koinly blogger’s defence that the HMRC SA108 is poorly designed IMHO. Other jurisdictions’ capital gains tax forms that I have prepared (incl. Canada and the US) do not have a box for Capital Gains Before Losses and a separate box for Capital Losses. They simply have a Net Capital Gains box, being the simple difference between Proceeds and Allowable Costs. In my experience, these are the only amounts that securities investment firms around the world provide in their year end tax reports. It seems to me that completing HMRC SA108 correctly for securities would require you to separate all trades with gains from all trades with losses and come up with totals for each lot. If you have a lot of trades, this will be a very painstaking manual process.

Ok cool
I thought I was going crazy but yeh it strikes me in the video he’s double counting his losses/

Kojnly need to update their HMRC form it spits out so it says 17. ‘Gains in the year before losses’ and not what it currently says ‘profits in the year before losses’ to avoid this confusion

In addition the bloggers video needs removing it’s incorrect

ALSO

To compound issues he takes off some ETH he has ‘lost’ you can’t do that.
HMRC do not count ‘LOST’ crypto as a capital loss unless you go through a negligible value process (i.e. make a 0 value manual entry, or ‘sell’ your crypto to a pal for £1 or some such so it can be counted as a loss)

I think Koinly need to remove/update this video ASAP it currently advises a wholly incorrect tax method in the video

Hey @jojo, I agree that Koinly video should be corrected or removed. One thing to note is that Koinly does provide a report with the correct amounts for boxes 14,15,16,17 and 19 on the HMRC Form SA108. See excerpt below.

However, it is only in the report called HMRC Capital Gains Summary. I don’t think the data is presented this way in any of the other Koinly tax reports.

Other property, assets and gains
14. Number of disposals
15. Disposal proceeds
16. Allowable costs (including purchase price)
17. Gains in the year, before losses
19. Losses in the year

@Mark_DesLauriers, Just when I thought I had finished inputting my tax I stumbled across this thread! I also used the HMRC tax video to calculate values, I understand what you mean about the guy double counting losses.

I’m lost though, if I wanted to offset gains slightly by deducting Expenses in the Complete Tax report which figure would I deduct these from?

I answered this earlier, Now if you know what the expenses on the full report are for and you think they are valid you could get aggressive with trying to reduce reduce you gains. From my understanding to do this correctly you need to add the cost/expense to the value of box 16, subtract it from the value in box 17 and box 19 (that’s different to the video).

Be warned Koinly has already taken into account most valid expenses so its probably quite high risk to assume anything in the expense column is a valid expense on a personal tax return. There are a few grey areas so you could take the chance while accepting if HMRC question it you might have to pay the extra tax.

Hi @Tom_Morgan, Deducting some or all of the Expenses listed in the Complete Tax Report from your Net Capital Gains is a complicated subject. As @Adrian_Mann says in one of the Comments above, “the big question is what are your cost/expenses for and are you allowed to deduct them from your [capital] gains?”

You probably have some Costs and/or some Transfer Fees in the Expenses section of your Complete Tax Report. The Costs could be a range of different things that may or may not be deductible for Capital Gains Tax purposes. The deductibility of Transfer Fees for Capital Gains Tax purposes has been discussed fairly extensively in this forum, including at the following link: https://discuss.koinly.io/t/uk-users-transfer-fee-bug/10901``

If you decide that some of your Expenses may be used to reduce your Net Capital Gains, you would add them to Allowable costs in Box 16 on the basis that they relate to the acquisition or disposal of your crypto assets, or are incurred wholly and exclusively for the purpose of enhancing the value of such assets.

You would also need to deduct the Expenses in question from Gains in the year, before losses in Box 17 to complete the adjustment to your Net Capital Gains calculation. (You need to adjust 2 Boxes because the difference between Boxes 14 and 15 should always equal the difference between Boxes 17 and 19, each such difference being your Net Capital Gains/Losses calculation.)

Hope this helps.

@Adrian_Mann and @Mark_DesLauriers, thank you guys for the clarification, much appreciated. I agree Transfer Fees shouldn’t be deducted as mentioned previously. In this case I think the costs I am claiming are valid (Strongblock node creation cost) which is essentially a non-refundable expense/cost and not the purchase of an asset. I think you could safely justify this as a written off expense as others have done similarly when it comes to node services.