The Financial Times reports that it is becoming increasingly common (although, I assume, still rather rare) for employees within the cryptocurrency industry to be paid in cryptocurrency rather than traditional currency.

Getting paid like this is likely to cause tax headaches for both the employer and the employee:

  •  employers will need to operate payroll deductions, and pay employer's national insurance, based on the market value of the cryptocurrency at the time it was paid (which, of course, could be different to the market value when the amount of payment was agreed);
  • employers will need to find a mechanism for employees to reimburse them, probably in traditional currency, for the payroll deductions before, at the very latest, 90 days after the end of the tax year (otherwise additional tax charges may apply);
  • if employers decide to cover the cost of any of the employee tax or national insurance deductions, additional tax charges (known as "grossing-up") will apply which can prove very costly for employers; and
  • once employees have received their cryptocurrency, and paid their income tax and national insurance contributions, they will hold a volatile asset. Any subsequent transaction they make using the cryptocurrency (such as selling it for traditional currency, exchanging it, using it to pay for goods or services or giving it away) will likely be a disposal for capital gains purposes - this means they will need to constantly track gains and losses and self-assess whether they need to pay capital gains tax, something that could easily become very complex.

Overall it may well be that the tax barriers to paying employees in cryptocurrency outweigh any potential positives to employees. At the very least it is not something that should be undertaken without some thought to the tax implications and the impact on the overall employee experience!