Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.
According to HMRC guidance, airdrops are not automatically subject to Income Tax. Income Tax may not apply when tokens are received in a personal capacity, without the recipient doing anything in return, and not as part of a trade or business involving cryptoasset exchange tokens or mining.
An airdrop is an allocation of tokens to an individual. For example, tokens may be distributed as part of a marketing campaign, automatically because an individual holds another token, or after an individual registers to take part.
HMRC’s guidance on airdrops says that an airdrop provided in return for, or in expectation of, a service is subject to Income Tax. This can include participating in a social media campaign. Depending on the circumstances, the airdrop is treated as miscellaneous income or as a receipt of an existing trade.
If the airdrop is a receipt of an existing trade, it is taken into account when calculating the profits of that trade. National Insurance contributions may also apply depending on the circumstances.
If the tokens are received without anything being done in return, and not as part of a relevant trade or business, Income Tax may not apply when they are received. A later disposal may still result in a chargeable gain for Capital Gains Tax; we cover that side in a separate article: How do airdrops impact cryptocurrency tax in the UK?
Need to sort out your crypto taxes? Use Recap, the privacy focused cryptocurrency accounting software to calculate the taxable gain or loss on your cryptocurrency investments!