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Experts are warning crypto investors to check their tax position in the wake of a new “nudge” letter campaign from HM Revenue & Customs.
The tax authority wrote this month to crypto holders it suspects have failed to pay the correct tax on their gains and plans a second round of letters in September.
HMRC has increased its focus on cryptocurrency holders in recent years and previously cited estimates that tax non-compliance among crypto investors could “range from as high as 55 per cent to 95 per cent”.
In general, anyone selling crypto assets is subject to capital gains tax (CGT) on profits above their annual CGT allowance (currently £3,000). However, in circumstances where HMRC considers buying and selling crypto assets to be “trading”, they can be subject to income tax and national insurance.
Individuals must keep records of their transactions and report and pay any tax due on an annual self-assessment return.
Paul Falvey, partner at BDO, the accountancy firm, said HMRC’s nudge letters were “targeted at those the tax authority knows have ‘disposed’ of crypto assets”.
“Many owners of crypto assets may not be fully aware of their obligations and may not have filed a tax return before. They could well get a shock when this letter hits the doormat — but the worst thing they could do is to ignore it,” Falvey said.
Disposals include selling a cryptocurrency, exchanging one coin for another, paying for a product or service using cryptocurrency or giving away tokens to another person (unless that person is your spouse or civil partner).
In recent years, HMRC has used its powers to demand information from crypto exchanges about their customers and that is likely to have informed the nudge letter campaign. From 2026, HMRC will receive data from crypto exchanges automatically through an OECD-led initiative, called the Crypto-Assets Reporting Framework.
“There’s a lot more data in the hands of HMRC and other government agencies than the general public realise in this space,” said Gary Ashford, chair of the Chartered Institute of Taxation’s crypto assets working group.
He cautioned that sometimes tax can be due even where the investor does not think his or her investments have been profitable.
“Selling, lending or ‘staking’ crypto assets — or potentially even just transferring assets between crypto sites and portfolios — will usually trigger a disposal in the tax year in question. This is the case even if no cash is taken out or after the end of the tax year the portfolio shows that there would be losses if all investments were cashed,” Ashford said.
He suggested anyone with crypto assets, not just those who receive HMRC’s letter, should review their tax position and make sure their affairs are accurate and up-to-date. Failure to meet obligations could result in HMRC charging late-payment interest and penalties.
“A voluntary disclosure is better than no disclosure. It will protect someone from a criminal investigation,” Ashford added. “If you know you’ve got a tax liability, and you deliberately don’t tell HMRC, that is a criminal offence.”
The drop in the CGT allowance, which was £12,300 in the 2022-23 tax year, but is now £3,000 will also make more people need to report their crypto gains.
Chris Etherington, partner at accountancy firm RSM UK, said working out whether crypto transactions were taxable was complicated and required a lot of detailed record-keeping.
“When the allowance was £12,300 a lot of people could be in this space and not have to worry about the complexity. Now what we have is £3,000 and that doesn’t take that much [to trigger]. You could have lots of people with really complicated affairs needing to report to HMRC.”
He suggested crypto investors should use crypto software to keep track of their transactions and also look at taking professional advice.
HMRC said: “We take a variety of approaches to ensure all taxpayers, including those who hold cryptoassets, are aware of their tax obligations and pay the correct amount of tax at the right time.
“This is routine activity. We regularly send letters to educate, remind or prompt people to review their tax affairs, particularly where we have information to suggest there are specific risks to the payment of tax owed.”