HM Revenue & Customs is clamping down on holders of cryptocurrencies such as Bitcoin and Ethereum, as well as exchange tokens, non-fungible tokens and utility tokens.
In December, the revenue and customs body launched a voluntary disclosure mechanism encouraging the public to tell it about unpaid tax on income or gains from crypto assets.
The measure follows an announcement that the UK will be implementing an OECD-led programme that will require crypto platforms to start sharing customer information with tax authorities, from 2027.
Dawn Register, head of tax dispute resolution at accountancy firm BDO, said: “The launch of this new disclosure facility highlights HMRC’s concern about non-compliance among crypto asset owners and underlines its determination to recover unpaid tax.”
She added: “Much of this non-compliance may stem from people simply not knowing or understanding their tax obligations when it comes to crypto,” saying the facility could be “a very useful opportunity to rectify past mistakes”.
The government has previously referred to estimates that tax non-compliance on the number of cryptoasset holdings could “range from as high as 55 per cent to 95 per cent”.
Adam Collins, a business expert, is now urging Brits to manage their tax obligations and prepare for HMRC’s increased scrutiny on past transactions, outlining some key recommendations:
Understanding the Tax Implications
Capital Gains Tax (CGT)
CGT applies when you dispose of your bitcoins, including selling them for cash, exchanging them for other cryptocurrencies, using them to pay for goods or services, and giving them away (other than to your spouse or civil partner).
Calculate the gain or loss for each transaction by determining the difference between the purchase cost (cost basis) of the bitcoins and their selling price. These details must be reported on your tax return.
Income Tax
If you receive bitcoins as payment for services or through mining, it might be considered income and taxed according to your Income Tax bracket.
Record Keeping
Maintain detailed records of all your cryptocurrency transactions, including transaction dates, the value in GBP at the time, the number of units involved, and cumulative totals.
Effective record-keeping ensures accurate tax calculations and is vital if HMRC inquires into your tax affairs.
Reporting to HMRC
If you owe CGT or must declare income from bitcoins, you’ll need to file a Self Assessment tax return annually.
If your total gains surpass the annual exempt amount, these must be reported to HMRC through their Capital Gains Tax service.
HMRC Crackdown on Non-Compliance for Past Transactions
HMRC is actively collecting data from various cryptocurrency exchanges and platforms to identify potential discrepancies in past transactions and tax evasions.
HMRC asserts its authority to tax any income or gains from bitcoin trading and is focused on enforcing compliance retrospectively for past years as well.
Non-disclosure of bitcoin-related gains can lead to significant penalties and interest charges, especially if HMRC believes the non-disclosure was deliberate.
Preparing for HMRC Inquiries
Engage a tax advisor specialising in cryptocurrency to ensure compliance with tax laws and provide support if HMRC investigates your past filings.
Transparency in your digital currency activities and meticulous record-keeping can help mitigate potential issues with the tax authorities.
Adam Collins of Ignite SEO says: “By adhering to these guidelines, you can effectively manage your tax responsibilities and reduce the likelihood of complications with HMRC concerning past and present Bitcoin transactions. Consulting with a tax professional, given the complexity and fluidity of tax laws, is strongly recommended.”
Related: Crypto Whales explained: What they are and why they matter