Nudge campaign targets cryptoasset holdersby
Tax advisers and cryptoasset specialists are reporting that HMRC is planning to target people trading on digital exchanges with “nudge” letters reminding them of their tax responsibilities.
The prospect of nudge letters targeting cryptoasset holders was raised last week by the Crypto UK lobby group, which shared the text of draft letters with the Financial Times. HMRC subsequently confirmed that it was ready to launch a new campaign to encourage crytoasset holders to declare their liabilities correctly.
As ATT technical officer Helen Thornley and Joe David from Myna Accountants have explained in previous articles on cryptoasset tax guidance, they are taxed in much the same way as stocks and shares in the UK. Capital gains tax (CGT) will usually apply, unless individuals are classified as traders, in which case income tax will be due.
The text of HMRC’s nudge letter to cryptoasset holders is designed to help people get their tax affairs right, the department said.
However, the new campaign is a sign that HMRC is increasingly concerned about the potential amounts of tax lost on income from cryptocurrency transactions. As part of its growing powers to gather information from digital platforms, the tax department has collected lists of crypto investors from many of the exchanges operating within the UK.
“These nudge letters show that HMRC is trying to raise awareness of crypto taxation and that they expect individuals and businesses to report any gains/income they receive from crypto,” said Joe David. “Whilst these are simply nudges, they show that HMRC does have the power to request information from companies that hold data about individuals' crypto investments and gain. As more crypto platforms become regulated, they will be able to prise out more and more information.”
As with many of the other nudge letters accountants have seen, the cryptoasset letters are unlikely to include any specifics, potentially causing stress for the recipients and complicating the work of advisers attempting to help them.
In its response to HMRC’s 21st century tax administration consultation in July, the Chartered Institute of Taxation urged HMRC to use nudge letters “to build trust with taxpayers rather than cause alarm”.
Because HMRC is using data gained from digital information exchanges, HMRC has been reluctant to reveal too much about what it holds and omits specifics in the letters it puts into the public domain, the CIOT explained.
To lessen the stress of non-specific nudges or the potential for acting on inaccurate data, the CIOT urged HMRC to develop more accurate analytic techniques before sending such letters. “Trust would be improved if the information was shared with taxpayers,” the institute added.
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AccountingWEB’s Editor at large has been with the site since 1999, rising from news editor to editor in chief, global editor and head of insight. As a roving editor, he continues to investigate the profession's use of technology around the world. He devotes his spare time to technology history and an oddball collection of stringed instruments...