In response to growing interest in cryptocurrency and other digital assets, HMRC launched their Cryptoassets Manual in March 2021. While cryptoassets are still not a defined asset in tax legislation, this guidance remains important to tax advisers and HMRC alike – so important that we have seen HMRC update the manual over 12 times. This reveals HMRC’s concern that tax revenue is being missed and that crypto owners may be completely unaware of their tax obligations.
HMRC have now gone one stage further by launching a cryptoasset-related disclosure campaign which encourages individuals to come forward and report tax liabilities to HMRC.
What unpaid taxes are HMRC seeking to collect?
- Capital gains tax – in our experience as crypto tax and accounting specialists, taxpayers are typically aware of CGT. We believe that most activity within the market will fall under this heading.
- Income tax – individuals will have income tax exposure if they participate in staking or mining. Consideration should also be given if assets have been given or provided undervalue for reward for services.
- Corporation tax – are digital assets held within a corporate entity rather than individuals?
- VAT – if you’ve launched a token or a digital project then VAT should be considered.
- Inheritance tax – Digital assets do form part of a deceased person’s estate and would be subject to IHT. Given the nature of digital assets, it can be difficult for executors to access accounts and establish what is held.
Why have HMRC launched this campaign?
Over the years we have seen this tactic deployed by HMRC with great success. They research and gather data, usually from third parties which have taken users’ anti-money laundering information when they register, such as cryptocurrency exchange platform Coinbase.
How do I make a voluntary disclosure?
You or your tax adviser will need to start by collecting information about the cryptoassets you owe tax on. You will then need to calculate:
- How many years you need to declare unpaid tax for
- The CGT and income tax you owe
- Any interest you owe
- Any penalties you will be liable for
What if I choose not to make a disclosure?
Given the information that you’ll have provided to platforms such as Coinbase upon registering, and how easy it is for HMRC to acquire that information, it is quite possible that HMRC already hold data about your crypto holding and trading activities. If you choose not to come forward and HMRC contact you further down the line, the penalty that they levy on any tax will be significantly greater; potentially a 100% penalty plus interest!
How BKL can assist
BKL have advised numerous clients on the tax implications of buying and selling cryptocurrencies, mining cryptocurrencies, arbitraging exchanges and margin trading as well as transferring back into fiat currencies. In addition to being well-established as crypto tax and accounting advisers, we are experienced in advising people on the use of HMRC’s voluntary disclosure facilities.
If you’d like to know more and are not already a BKL client, please get in touch with our crypto tax specialists using our enquiry form.