Accountants for US and UK Token Grants Paid to Founders

Tokens paid for work are earnings in both countries. HMRC treats them as money's worth taxed as employment income on receipt, and the IRS treats them as property received for services under section 83. Lock-ups rarely defer the charge, elections are narrow and time-limited, and the holding may also need reporting on Form 8938.

Almost everything written about digital assets and tax is aimed at investors. Very little addresses the founder or early employee who was never an investor at all, and who simply received an allocation in return for building the product. For an American living in the UK that allocation is taxed twice over as pay, under two sets of rules written for shares rather than tokens, in two currencies and two tax years. It is exactly the kind of file that specialist Accountants for US and UK taxpayers are asked to prepare, and frequently to repair after the event. At Jungle Tax we prepare both returns side by side, and this guide sets out how the two systems treat token pay, where the published guidance stops, and how earlier years are put right.

One point of method before the detail. We have read the employment pages of HMRC's Cryptoassets Manual and the IRS digital asset guidance for this guide. Neither addresses vesting schedules, lock-ups or restricted tokens. Where that is the case we say so rather than assert a position.

Are tokens received for work taxed as income or as capital?

As income, in both countries, at the point of receipt. The capital gains rules only take over afterwards.

The UK position: money's worth

HMRC's Cryptoassets Manual at CRYPTO21100 states that cryptoassets received as employment income count as money's worth and are subject to Income Tax and National Insurance contributions on their value. The same page confirms that a later disposal may produce a chargeable gain. The taxable amount is the sterling value on the day of receipt, and that figure becomes the base cost for Capital Gains Tax.

The US position: property for services

The IRS treats digital assets as property, not currency. Its frequently asked questions on virtual currency transactions confirm that tokens received for services are ordinary income, measured at fair market value in US dollars when received, and that this value becomes the basis. For an employee the amount is wages; for an independent contractor it is self-employment income. The IRS digital assets page also confirms that anyone who received a digital asset as a reward, award or payment for services must answer yes to the digital asset question on Form 1040. A US citizen or green card holder living in the UK is within all of this regardless of where the work was done or who paid.

What is a readily convertible asset, and why does it decide who pays?

In the UK, the readily convertible asset test determines the collection mechanism, not the liability. Under section 702 of ITEPA 2003, the UK employment income statute, an asset is readily convertible if trading arrangements exist, or are likely to come into existence, that allow it to be turned into money. CRYPTO42100 records HMRC's view that exchange tokens generally will be readily convertible assets.

Where the test is met and there is a UK employer:

• the employer values the tokens using the best estimate that can reasonably be made;
• the employer accounts for PAYE Income Tax and employee Class 1 National Insurance on that value through real time reporting, and employer National Insurance is due as well;
• the tax is normally recovered from the employee's cash pay, but if there is not enough cash the employer must still pay HMRC in full;
• the employee must then make good the amount paid on their behalf within 90 days after the end of the tax year, failing which a further Income Tax and National Insurance charge arises on the amount not made good.

Where the token is not a readily convertible asset, PAYE does not apply and the employee reports the earnings on the employment pages of a Self Assessment return. The National Insurance treatment also differs and should be checked against HMRC's separate National Insurance page in the manual.

The difficulty for founders is the grant made before any market exists. A token with no trading venue today may still be readily convertible if trading arrangements are likely to come into existence. Whether a listing that is hoped for, planned or contractually scheduled meets that description is a question of fact at the date of acquisition. HMRC's manual does not give examples for pre-launch tokens.

How do lock-ups and vesting change the timing?

Two different restrictions are routinely confused, and the tax consequences differ sharply.

• Vesting (forfeiture). You lose the tokens if you leave before a date or a milestone. Your entitlement is conditional.
• Lock-up (transfer restriction). The tokens are yours and cannot be taken back, but you cannot sell or transfer them for a period.

United States: section 83

Section 83 taxes property transferred for services when it is either transferable or no longer subject to a substantial risk of forfeiture. Unvested tokens that have actually been transferred to you are therefore generally taxed as each tranche vests, at the value on that day. If the token has appreciated between grant and vesting, the whole of that growth is ordinary income.

A lock-up alone is treated differently. A restriction on sale is not, in general, a substantial risk of forfeiture, so tokens that are fully earned but locked are income when received. Section 83 also requires fair market value to be determined without regard to any restriction other than one which by its terms will never lapse. A lock-up lapses. On the statutory wording, therefore, the lock-up does not reduce the amount of income. This is the single most common surprise we see: tax at full quoted value on tokens that could not be sold to fund it, and which may have fallen substantially by the time they could be.

A third structure sits outside section 83 at the outset. Where the holder has only a contractual right to receive tokens in future, with nothing yet delivered, the section 83 regulations exclude an unfunded and unsecured promise to transfer property from the definition of property. Income then generally arises on delivery. The label on the document is not decisive; what matters is whether tokens were in fact transferred.

The IRS has issued no guidance applying section 83 specifically to tokens. The analysis above applies the general statute and regulations, which is what practitioners do, but it is not an IRS-published position.

United Kingdom: no published HMRC view

HMRC's Cryptoassets Manual does not address vesting, forfeiture or lock-ups at all. The employment pages deal with a straightforward payment of tokens and stop there. Two analytical routes are possible, and which applies depends on the nature of the token.

• If the token is a security within the employment-related securities legislation in Part 7 of ITEPA 2003, the restricted securities regime applies its own rules on acquisition, on the lifting of restrictions and on disposal.
• If the token is not a security, those rules do not apply and the general earnings rules govern. The questions then are when the employee became unconditionally entitled, and what an asset is worth as money's worth when it cannot be sold. Those are answered from case law principles on earnings, not from any token-specific guidance.

HMRC has not said which tokens it regards as securities for this purpose. We state that plainly because a great deal of commentary online assumes one answer or the other.

Is an election on receipt available on either side?

The US section 83(b) election

Where tokens have been transferred subject to a substantial risk of forfeiture, the recipient may elect under section 83(b) to include their value in income at the date of transfer instead of at vesting. The consequences are:

• ordinary income arises immediately on the value at transfer, less anything paid;
• later growth is capital, and the capital gains holding period starts at transfer;
• the election must be filed with the IRS within 30 days of the transfer, and the deadline cannot be extended;
• the IRS now provides Form 15620 for the purpose;
• the election cannot be revoked without IRS consent, and if the tokens are later forfeited no deduction is given for the income already recognised.

No election is available on a bare promise of future tokens, because nothing has been transferred, and none is needed on tokens that are vested but locked, because they are already taxed on receipt. From a preparation standpoint the question on every file is factual: was an election made, was it made in time, and is there proof of filing? A late or undocumented election is treated as no election.

The UK section 431 election

Section 431 allows an employer and employee jointly to elect that restricted securities are taxed on acquisition as if the restrictions did not exist, so that later growth falls outside Income Tax. It must be made within 14 days of acquisition, in a form approved by HMRC, and is retained by the parties, not filed.

It is available only where the asset is a security within Part 7 and only where there is an employment relationship. If the token is not a security, there is no section 431 election to make, and no UK equivalent that fixes the income charge at grant. Because HMRC has not published a view on tokens within these rules, a section 431 election signed over a token grant is evidence of what the parties intended, not a guarantee of treatment.

Why the two elections do not line up

The elections have different conditions, different deadlines of 30 and 14 days, and different counterparties. It is entirely possible for a valid 83(b) election to accelerate the US charge to the year of grant while the UK charges the same tokens in a later year as they vest. The foreign tax credit, which normally relieves the overlap, then has UK tax in one year and US income in another. Unused foreign tax credits can be carried back one year and forward ten, so a gap of several years between the two charges can leave tax unrelieved. This is a compliance consequence that has to be identified and computed across the whole vesting period, not year by year.

US and UK treatment of token pay compared

How is a thinly traded token valued?

Both authorities ask for an honest market value at a specific moment and neither prescribes a method for an illiquid token.

• HMRC requires the best estimate that can reasonably be made. Where a token trades on only one or two venues with low volume, a single last-traded price may not be a reasonable estimate without more.
• The IRS accepts the price recorded by a trading platform where there is one, and a blockchain explorer value for off-platform transactions. Where a token is not traded on any exchange and has no published value, its FAQs say the fair market value equals the fair market value of the services exchanged for it.

In practice a defensible valuation file contains the dates and quantities of each receipt from the grant documents and the wallet record, the price source or sources used with volume data, the reason any source was preferred or disregarded, the exchange rate applied on the day, and any independent valuation obtained by the issuer at the time. The same underlying valuation should support both returns. A pound figure on the UK return and a dollar figure on the US return that cannot be reconciled at the day's exchange rate invites questions from both sides.

Whether a discount for a lock-up is permissible is one of the points where the systems diverge. Section 83 excludes it by statute. For UK money's worth purposes HMRC has published nothing either way.

Who withholds when the payer has no UK presence?

Many token grants are made by an overseas entity with no office, branch or staff in the UK. Such a payer generally has no obligation to operate PAYE. That does not remove the charge; it moves it to the individual.

• Income Tax. The earnings are reported on the employment pages of the Self Assessment return, with payment due by 31 January following the tax year, and payments on account potentially due for the next year. In some cases HMRC expects the employee to operate a direct payment arrangement and account for tax in-year.
• National Insurance. Where the employer has no place of business in the UK, the employee may be required to pay their own Class 1 contributions directly to HMRC.
• A UK entity in the picture. If the individual in fact works for a UK business in the group, the PAYE rules can treat that UK business as the employer for these purposes. Who the work is actually done for matters more than who signed the grant.
• Contractors. A founder engaged as a consultant is outside PAYE and reports the tokens as trading or other income, with different National Insurance classes.

On the US side an overseas payer will usually issue no Form W-2 and withhold nothing. The income is still reported as wages on Form 1040. US social security coverage for someone working in the UK is governed by the bilateral totalisation agreement, which generally assigns coverage to the country where the work is performed; a self-employed individual relying on it needs a certificate of coverage to support the position on the US return.

Where does the holding sit on the FBAR and Form 8938?

These are information returns, separate from the tax on the income, and each has its own uncertainty.

FBAR

The FBAR is required where the aggregate value of foreign financial accounts exceeds $10,000 at any time in the year. The authority that administers it stated in a 2020 notice that a foreign account holding virtual currency is not currently a reportable account, and that it intends to amend the regulations to include one. As at the date of this guide that amendment has not been finalised. Two practical points follow. An account on a non-US platform that also holds cash or other reportable assets is reportable under the existing rules. And tokens held in a wallet the individual controls directly are not an account with a financial institution at all.

Form 8938

Form 8938 reports specified foreign financial assets. For a single filer living abroad the threshold is more than $200,000 on the last day of the year or more than $300,000 at any time; for joint filers abroad the figures are $400,000 and $600,000. The instructions do not expressly address digital assets, and the IRS has not published a definitive statement on tokens. Tokens held with a non-US custodian are widely reported as an interest in a foreign financial account. Self-custodied tokens issued by a non-US entity are genuinely unsettled, and vested-but-locked tokens held by the issuer on the individual's behalf raise the same question. Where a position is taken not to report, we document the reasoning in the file; where the value is material, many filers choose to disclose.

An unvested entitlement is a different matter. A right that can still be forfeited is not generally treated as a reportable asset until it vests, although the grant should be tracked from day one so the reporting year is not missed. Our FBAR penalty calculator gives a sense of the exposure where an account should have been reported and was not.

What happens when the tokens are eventually sold?

The income charge sets the starting point for the capital computation in each country, and the two will rarely match.

• UK. Tokens of the same type are pooled, with same-day and 30-day matching rules applied first. The gain is the sterling proceeds less the pooled cost, which includes the amount already taxed as earnings. Gains are charged at 18% or 24% depending on the individual's income, after a £3,000 annual exempt amount.
• US. Basis is the dollar amount included in income. Units are identified specifically or on a first-in, first-out basis. A sale more than one year after the holding period began qualifies for long-term rates of up to 20%, and the 3.8% net investment income tax may apply in addition.

Because the UK pools and the US tracks lots, and because each measures in its own currency, the same sale can produce a gain in one country and a loss in the other. Swapping one token for another is a disposal in both. The net investment income tax is not generally reduced by foreign tax credits, which is a recurring source of residual US tax for UK residents. Where the wider picture involves a company sale, our cross-border tax team prepares the token and share computations together.

What gets missed, and how are prior years put right?

The omissions we most often find when a new client brings us their history are consistent:

• token receipts treated as non-taxable until sale, in one or both countries;
• income reported in one country and not the other, usually because only one payer issued paperwork;
• vesting tranches valued at the grant-date price, or all at a single year-end price;
• an 83(b) election assumed but never filed, or filed late;
• the Form 1040 digital asset question answered no in a year when tokens vested;
• no UK return filed at all because no PAYE was operated;
• Form 8938 omitted for a foreign custodial holding well above the threshold;
• token-for-token swaps left off both returns.

Correcting the US side

Where the omission was non-wilful, an American living in the UK will usually look to the IRS Streamlined Foreign Offshore Procedures: the most recent three years of returns, amended or original, six years of FBARs, and a signed certification of non-wilful conduct. For those who meet the non-residency test, no penalty is charged on the tax or the missed forms; the tax and interest are paid in full. Where only information returns were missed and no tax is due, the delinquent filing procedures may be the more proportionate route. A missed 83(b) election cannot be cured through any of these; the returns are prepared on the default vesting basis.

Correcting the UK side

A Self Assessment return can be amended within 12 months of the 31 January filing deadline. Beyond that, the correction is made by voluntary disclosure, and HMRC operates a dedicated disclosure route for unpaid tax on cryptoassets. HMRC can ordinarily assess four years back, six where the loss of tax was careless and twenty where it was deliberate, and penalties are materially lower for an unprompted disclosure than for one made after HMRC has made contact. If a UK employer should have operated PAYE and did not, the employer has its own exposure, and the order in which matters are raised with HMRC needs thought.

Sequencing the two

The two corrections depend on each other. The UK tax finally payable drives the foreign tax credit on the US returns, and the US valuation work supplies most of what the UK disclosure needs. We prepare both sets of figures from a single reconciled token ledger before anything is submitted to either authority. Both authorities are also receiving more data than before: US custodial brokers report digital asset sales on Form 1099-DA for transactions from 1 January 2025, and UK platforms have been collecting user and transaction data for reporting to HMRC since 1 January 2026.

What records should a founder or early employee keep?

• the grant agreement, vesting schedule, lock-up terms and any amendments;
• proof of what was actually delivered and when, from the wallet or custodian record;
• any 83(b) election with proof of posting, and any section 431 election;
• the valuation used at each receipt date and its source;
• payslips, Forms W-2 or P60s, or confirmation that none were issued;
• a complete disposal history including swaps and transfers between your own wallets;
• year-end and peak values for Form 8938 and FBAR purposes.

How Jungle Tax prepares token compensation files

Our work is preparation and compliance: building the ledger, establishing what each country taxes and when, preparing the US and UK returns together so the credits match, and bringing earlier years up to date where something was missed. We work routinely with founders, executives and high-net-worth individuals whose pay arrived as tokens, alongside our wider US-UK tax accountants service. Where the law is unsettled, we tell you so, show you the position taken on each return and document why.

If you have received tokens for your work and are unsure whether they were reported correctly in either country, or you know that earlier years need to be corrected, contact our cross-border team for a confidential consultation. We will review the grant documents and your filing history and tell you precisely what needs to be filed, in which country, and in what order.