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HMRC nudges crypto owners as tax return deadline looms

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The UK tax office has issued a new warning for cryptoasset owners to check if they need to submit a self assessment tax return by the end of this month, or risk fines and interest charged on outstanding tax.

12th Jan 2024
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In its tax return reminder for cryptoasset users publication, HMRC urged anyone who received, sold or exchanged cryptoassets during the 2022 to 2023 tax year to declare any income or gains above the tax-free allowance on a tax return before the 31 January deadline.

Based on research published in July 2022, HMRC believes that approximately five million people in the UK hold some form of cryptoasset – up to one in 10 of the adult population. However, many cryptoasset owners may not realise they need to file a tax return for holding the digital currencies, particularly where no money has been received as HMRC considers the exchange of one cryptoasset for another to be a taxable event which may give rise to a capital gain or loss.

HMRC’s reminder outlined that tax may be due when a person:

  • receives cryptoassets from employment, if they’re held as part of a trade, or are involved in crypto-related activities that generate an income
  • sells or exchanges cryptoassets, including selling cryptoassets for money, exchanging one type of cryptoasset for another, using cryptoassets to make purchases, gifting cryptoassets to another person or donating cryptoassets to charity.

It added that anything submitted past midnight on 31 January is considered late and can incur a £100 fixed penalty, which can rise to £900, with HMRC applying a further 5% penalty (or £300, whichever is greater) after six months. These penalties apply even if there is no tax to pay or if the tax is paid on time. 

Nudge nudge 

Recent months have seen dramatic price rises in a number of key cryptocurrencies, with the price of Bitcoin up over 140% in the past year – a fact that is likely to have moved taxing crypto incomes and gains up the priority list for HMRC.

In November 2023, HMRC opened a dedicated disclosure route for people needing to declare previously undeclared crypto gains. As reported by Andersen in the UK crypto experts Dion Seymour and Laura Knight, the tax office has also sent a total of 8,329 ‘nudge letters’ to individuals suspected of owing tax on their cryptocurrency assets. 

According to Neela Chauhan, a partner at UHY Hacker Young, the nudge letters are likely to be followed by HMRC enquiry letters asking for specific information from taxpayers about their crypto holdings.

“As HMRC gains access to more data, crypto traders will no longer be able to evade the tax authority’s attention,” said Chauhan.

HMRC has been collecting data on cryptocurrency investors from crypto exchanges for at least three years, using this information to target cryptoasset owners they believe have not settled their tax liabilities. The UK is also part of an OECD-led programme which will oblige crypto exchanges to share customer information with national tax authorities from 2027, providing HMRC with even more data to target its investigations.

The Revenue has also published cryptoasset taxation guidance and a cryptoassets manual with more detail on how it interprets crypto tax rules. 

Big crypto tax opportunity

“This warning from HMRC highlights the tax authority’s growing interest in those people who have made gains from crypto assets but have failed to declare them,” commented Dawn Register, head of tax dispute resolution at BDO.

“Part of this may be down to lack of knowledge. HMRC’s own research has found that crypto ownership is more concentrated among younger age groups with many people being unaware of the tax treatment. However, ignorance of the rules won’t give you a free pass.

“If people don’t declare what they are required to and HMRC discovers that additional tax is due, it can charge late payment interest in addition to tax-geared penalties of up to 100% of the tax – or more if the holding was based offshore.”

“The crypto boom means that it’s become a big tax opportunity for the Treasury, almost overnight,” said Seb Maley, CEO of tax insurance provider Qdos. “In our experience, this has resulted in a lot of confusion among people holding cryptoassets, who aren’t always sure if they need to file a tax return.

“While seasoned self-employed workers are well aware of the importance of filing their self assessment, it’s crucial that those making money in new ways – whether through crypto or side hustles – get on top of their tax affairs too,” added Maley.

“One thing’s for sure, HMRC is ramping up its compliance activity and will launch tax investigations if it suspects foul play."

Replies (4)

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By JustAnotherUser
12th Jan 2024 12:13

"HMRC believes that approximately five million people in the UK hold some form of cryptoasset"

We've debated this in here before, sample sizing is poor and methodology is worse.... why don't they please just share how many users have had details shared back from exchanges.... I suspect its a fraction of 1%. (who have cashed out more than £5,000 in fiat )

Were just in a right pickle aren't we....

....the new FRC guidance on client appropriateness testing, blocks UK users from trading on platforms like coinbase if they have less than 100k of income.

Majority of highstreets banks block crypto transfers to exchanges.

Government sets out plan to make UK a global cryptoasset technology hub.

So as a nation do we want our residents to have financial freedom, in a crypto hub where we collect additional taxes from millions of users... but banks block and the FRC is mandating exchanges block customers with income under 100k?

We still think there's 5 million crypt holders needing a nudge?

Thanks (1)
Replying to JustAnotherUser:
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By FactChecker
12th Jan 2024 13:08

Indeed ... see https://www.accountingweb.co.uk/tax/hmrc-policy/cryptoasset-holders-urge...

And, sorry Tom, but a little more care is needed when swallowing the HMRC line (hook and sinker).
".. many cryptoasset owners may not realise they need to file a tax return for holding the digital currencies .."
is not true (although it would be less misleading with the judicious insertion of 'may' between 'they' and 'need'.

Even then, it's not the 'holding' that results in the need for a tax return - it's any acquisition or disposal, including the less well understood world of swaps and transfers, that are the likely triggers.

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Replying to JustAnotherUser:
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By moneymanager
18th Jan 2024 11:14

Governments have no wish for us to have financial freedom, unless we decline CBDCs or nonsense like government crypto, we will have financial handcuffs, a digital prison; thirteen million Chinese cannot buy a train ticket and that's coming here, very fast, use CASH.

Thanks (1)
Replying to moneymanager:
By Nick Graves
18th Jan 2024 12:42

I believe a lot of the crypto-community would agree with you and are preparing to 'go Galt'...

Who is John Galt..?

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