Many UK employers have asked whether paying salaries, bonuses or contractor fees in Bitcoin, Ether or other tokens could simplify payroll or reduce tax. The short answer is: it cannot. Crypto pay is taxable as employment earnings under CRYPTO42000, PAYE and National Insurance apply where the tokens are readily convertible assets, and employees face a second tax event when they later sell. This page explains each step in plain terms so you can set up crypto pay correctly or decide it is not worth the complexity.
The short answer: crypto pay is earnings, PAYE and NIC apply, and it is rarely simpler
Paying an employee in Bitcoin does not change the earnings charge. HMRC treats the payment as employment income valued in sterling at the date of receipt. Where the tokens are readily convertible assets (the test that covers most cryptoassets traded on established exchanges), the employer must operate PAYE, deduct employee National Insurance, and account for employer Class 1 NIC at 15% above the £5,000 secondary threshold. The employee then holds the tokens with a CGT clock running. There is no payroll saving and the admin burden is higher than for sterling pay.
Crypto as employment income: taxed as earnings at sterling value
Under CRYPTO42000, cryptoassets received as employment income are employment earnings. The taxable amount is the sterling market value of the tokens on the date the employee receives them, not the value when the employer bought the tokens and not the value when the employee eventually sells them.
This means two things for the employer. First, you need to establish the sterling value of the tokens on each payment date. For liquid tokens this is usually the mid-market rate on the date of transfer from a recognised exchange. Second, that sterling value is what you report and pay tax on via payroll, even if the employee never converts the tokens to cash.
The employee cannot defer the income charge by holding the tokens. The employment income tax arises on receipt.
Readily convertible assets: the test that decides whether PAYE and NIC bite
PAYE and NIC do not automatically apply to every payment in kind. They apply to readily convertible assets: assets for which trading arrangements exist, or are likely to come into existence, such that the recipient can convert them to cash. HMRC's position under CRYPTO42000 is that cryptoassets traded on established exchanges meet this definition.
In practice this covers the overwhelming majority of tokens you would consider using for salary. If there is an exchange where someone can sell the token for sterling, it is almost certainly a readily convertible asset. The employer cannot escape PAYE by choosing a token that happens to be less liquid on the day of payment; HMRC's test looks at whether arrangements exist or are likely to exist, not just the state of the market at that exact moment.
Where a token genuinely falls outside the readily convertible assets definition, the earnings charge still exists but the employee self-reports through Self Assessment rather than the employer operating PAYE. This is a narrow exception and specialist advice is needed before relying on it.
The employer's payroll obligations: operating PAYE and accounting for NIC
Once you have established that the tokens are readily convertible assets, your payroll obligations are:
- Value the tokens in sterling at the date of payment.
- Add that sterling value to the employee's gross pay for the pay period.
- Calculate income tax due under PAYE in the normal way and deduct it from the employee's other pay (or, if there is no other cash pay, require the employee to make good the tax liability).
- Calculate employee Class 1 NIC on the sterling value and deduct it similarly.
- Calculate employer Class 1 NIC on the sterling value above the secondary threshold and account for it to HMRC.
- Report the payment through Real Time Information in the same way as cash earnings.
The practical difficulty is that if you pay entirely in tokens and there is no cash salary from which to deduct PAYE and NIC, you must either top up with cash to cover the deductions or enter into an agreement with the employee for them to make good the amounts due. HMRC has specific rules for non-cash earnings and the employer remains liable for the PAYE even if the employee agrees to cover it.
Employer National Insurance: 15% above the £5,000 secondary threshold (from 6 April 2025)
Employer Class 1 NIC is charged at 15% on the sterling value of the tokens above the £5,000 secondary threshold, from 6 April 2025 under the Finance Act 2025 changes. This rate applies to the earnings value of the crypto pay in exactly the same way as to a cash salary of the same amount.
A worked example: an employee is paid tokens worth £60,000 in a tax year with no other earnings. Employer NIC is 15% on (£60,000 minus £5,000) = 15% on £55,000 = £8,250, paid by the employer to HMRC on top of the sterling value of the tokens.
The old rate of 13.8% above the £9,100 secondary threshold is stale and must not be used for 2025/26 or later payroll calculations. Check the current employer NIC rates at gov.uk at the point of calculation.
There is no mechanism by which paying in crypto rather than cash reduces the employer NIC liability. The charge is on the earnings value, not on the form of the payment.
The employee's second tax: CGT when they dispose of the tokens
Receiving tokens as earnings and paying income tax and NIC on receipt does not end the employee's tax exposure. The tokens are now held as a capital asset. The sterling value used for the PAYE calculation becomes the employee's CGT base cost.
When the employee later sells, swaps, spends or gifts the tokens, that disposal is a chargeable event for Capital Gains Tax. The gain or loss is calculated as proceeds less the base cost established at receipt.
CGT rates on cryptoassets for 2026/27 are:
- 18% on the part of the gain within the employee's remaining basic-rate income tax band.
- 24% on any gain above that boundary, or a flat 24% for higher and additional-rate taxpayers.
The annual exempt amount is £3,000. Employees who hold tokens from salary payments and sell them in the same tax year as other disposals may exhaust the AEA quickly.
If the token value falls between receipt and disposal, the employee has a capital loss. That loss can only be set against capital gains; it does not reduce the income tax already charged on receipt. The employee therefore bears both the income tax on a high-water value and the loss on the way down, with no offset between the two charges.
Contractors and directors paid in crypto
The same employment-earnings analysis applies to company directors paid in tokens: the value on the date of payment is employment income, and PAYE and NIC apply to readily convertible assets. Whether a contractor engaged through a personal service company falls within IR35 is a separate question that is outside the scope of this page; if that is your situation, speak to us about your specific engagement.
Why paying in crypto rarely saves tax or admin
The case for crypto pay is sometimes framed as avoiding PAYE or reducing NIC. Neither works. Employer NIC at 15% above the £5,000 secondary threshold applies to the earnings value of the tokens. PAYE applies to the same value. The employer also takes on:
- A daily valuation obligation to establish sterling market value on each payment date.
- Foreign-exchange risk between buying and paying the tokens.
- Increased RTI complexity if there is no cash pay from which to deduct PAYE.
- The need to resolve what happens if the token price falls sharply between the salary agreement and payment date.
The net result is usually higher admin cost, equal tax cost, and additional risk, compared with paying sterling and letting the employee buy crypto themselves if they choose to.
Setting up crypto pay correctly
If you are considering paying salary, a bonus or fees in crypto, the starting questions are:
- Are the tokens readily convertible assets? (Almost certainly yes for any listed token.)
- How will you establish and document the sterling value on each payment date?
- How will you collect the PAYE and employee NIC due if there is no cash element?
- Have you modelled the employer NIC cost at 15% above £5,000 on the sterling value?
- Has the employee been advised that they will face a second tax charge on disposal?
Getting any of these wrong leaves the employer liable for unpaid PAYE and NIC plus interest and penalties. Visit our crypto tax for businesses page to see how we help UK employers and directors set up crypto pay compliantly, or to assess whether the complexity is worth it for your situation.