In a strategic move to combat tax avoidance within the cryptocurrency world, HMRC unveiled a strategic and targeted campaign on crypto assets on 29 November 2023. The HMRC initiative urges cryptocurrency investors to proactively address any outstanding tax liabilities they may have.
The campaign is in response to the growing concern that numerous crypto asset owners may be unaware of their tax obligations, leading to inadequate disclosure of their taxable gains.
Whilst the tax treatment of crypto assets is inherently complex, HMRC has provided guidance to assist individuals in navigating their tax responsibilities.
Generally, profits or losses from buying and selling exchange tokens are viewed by HMRC as subject to Capital Gains Tax (CGT). HMRC are unlikely to be persuaded you trading in crypto assets for tax purposes except under exceptional circumstances.
For individuals who have realised profits from selling crypto assets during the tax year, a careful assessment of reporting and tax obligations is imperative. The filing of a tax return to accurately disclose gains may be necessary.
Estimates indicate that one in ten adults in the UK possesses crypto assets, with ownership being more prevalent among men and concentrated within younger age brackets.
What exactly are HMRC’s concerns on crypto assets?
The introduction of this disclosure facility by HMRC highlights its concern about non-compliance among crypto asset owners and its commitment to recouping unpaid taxes.
Many individuals, particularly young adults, may be uninformed about their tax obligations regarding crypto assets.
This HMRC campaign offers individuals an opportunity to rectify any past oversights and adhere to their tax obligations.
In certain circumstances, seeking specialised advice on the most appropriate disclosure facility may be advisable.
Penalties and interest for non-disclosure of gains on Crypto Assets
Failure to disclose unpaid taxes on crypto assets can result in additional penalties and interest. Depending on the reason for non-disclosure, HMRC can assess additional tax payable for several years, with up to 20 years available for assessment. Late payment interest will also be charged on any additional tax due.
HMRC holds the authority to impose tax-geared penalties of up to 100% of the tax owed, or even more in cases where the assets were held offshore.
It is imperative for crypto investors to step forward and disclose any unpaid tax to avoid these penalties and interest charges.
What is the Crypto Assets Reporting Framework?
In the near future, HMRC will begin receiving automatic information about an individuals’ trading activities from crypto platforms. This development aligns with the UK’s commitment to implement the Organisation for Economic Co-operation and Development’s (OECD) Crypto-Asset Reporting Framework (CARF) by 2027.
The CARF aims to facilitate the automatic exchange of tax-relevant information across international borders. Implementation of the CARF will mandate crypto platforms to share taxpayer information with tax authorities, enabling improved monitoring and enforcement of tax obligations.
This collaborative effort involving 48 countries aims to counter criminals’ use of crypto-assets to evade and avoid tax payments, ultimately securing the revenue needed for essential public services.
Crypto Assets compliance, when should you seek specialist tax advice?
As the ownership of crypto assets becomes more commonplace, it is important for individuals to understand and comply with their tax obligations. The launch of this disclosure facility provides an opportunity for asset owners to rectify any past non-compliance and fulfil their tax responsibilities.
To navigate the complexities of crypto taxation effectively, individuals are advised to maintain records of their assets and seek specialist advice on the most appropriate way forward.
If you wish to speak to a member of our tax team regarding the HMRC initiative around crypto assets, or indeed any other area of tax compliance or tax planning, contact us on 020 7870 9050.
