06 Sep 2024

HMRC crypto tax disclosure letters: what you need to know

Publications

HMRC are sending letters to individuals and businesses that they believe may have failed to report their cryptocurrency transactions. These letters serve as a warning and a prompt to review  tax obligations concerning cryptocurrency trading, mining and other related activities.

Typically, these letters are sent to those who have engaged in crypto transactions that may trigger tax liabilities but haven’t declared these transactions on their tax returns. The letters usually include information on how to report crypto income correctly and a reminder of the penalties for failing to comply.

Who Receives These Crypto Tax Disclosure Letters

You might receive a crypto tax disclosure letter from HMRC if:

  • You’ve exchanged large amounts of cryptocurrency or been involved in multiple trades without reporting them
  • You use a cryptocurrency exchange which partners with HMRC and has reported transaction data linked to you
  • You’re engaged in mining activities, especially if you haven’t reported income generated from mining
  • Your company accepts cryptocurrencies for goods or services

Implications of Receiving a Crypto Tax Disclosure Letter

Receiving a tax disclosure letter from HMRC is a serious matter. It indicates that HMRC are actively monitoring your crypto activities and believe there’s a discrepancy in your tax reporting.

The letter provides an opportunity to assess your tax situation regarding cryptocurrency. It’s crucial to review past transactions, income generated and whether taxes have been accurately reported.

If HMRC find that you haven’t complied with tax regulations, you could face penalties, including interest on unpaid tax. The severity of penalties depends on whether the non-compliance was deliberate or careless.

The letter will typically encourage recipients to come forward and rectify any mistakes voluntarily. HMRC may show leniency for those who proactively disclose their crypto income before a formal investigation begins.

How to Respond to a Crypto Tax Disclosure Letter

If you receive a letter from HMRC, it’s essential to take it seriously and respond appropriately:

  • Understand what HMRC are asking and the information they believe you haven’t reported
  • Collect records of all your cryptocurrency transactions, including purchases, sales, trades, and mining income. Ensure that you have accurate records of the amounts, dates, and involved parties
  • Consult with a tax professional who has extensive experience in cryptocurrency taxation. They can help you navigate the complexities of crypto tax laws and ensure full compliance with HMRC
  • If you discover that you have indeed failed to report income accurately, work with your adviser to amend your tax returns. Submitting a corrected return voluntarily can mitigate potential penalties
  • Ensure that you respond to HMRC within the timeframe specified in the letter. Delays in communication may lead to further scrutiny

How we can Help

Our tax risk & dispute resolution team are highly experienced in dealing with HMRC on behalf of individuals, families and businesses. When you receive a disclosure letter, we can help you to review your tax position: managing how HMRC view the matter, as well as mitigating any penalties that HMRC may seek to charge. We have many years’ experience giving UK tax advice to holders and traders of cryptocurrency.

If you’ve received a crypto tax disclosure letter from HMRC, contact us today to find out how we can help.