Many more people are now considering investments in cryptocurrencies due to the plethora of publicity currently surrounding them. However many crypto investors do not realise that taxes may be due on gains made during the purchase and sale of cryptoassets.
HM Revenue and Customs is not oblivious to the gains being made by crypto investors and in March 2021 HMRC published its Cryptoasset Manual which maps out HMRC’s view of the appropriate tax treatment of cryptoassets.
HMRC have recently started to follow this up by sending “nudge” letters to crypto investors, warning them to check they have paid the correct amount of tax.
This response from HMRC was to be expected as tax authorities in other jurisdictions such as Australia and the US already send pre-emptive letters to crypto investors.
We strongly urge anyone with crypto investments to take advice immediately and not wait for a letter from HMRC.
HMRC is able to identify and contact crypto investors directly because many crypto exchanges are now open and transparent with easy access to historic transactions. This allows HMRC far greater reach in terms of investigating tax errors or fraud.
We are already advising many investors who have received one of HMRC’s letters within the last few weeks and it is clear that some of the recipients are shocked and anxious. It’s important for those receiving any nudge letter from HMRC to understand that it doesn’t necessarily mean there is an error in your tax return; instead it serves to highlight your obligations and you need to ensure that you respond correctly to HMRC. If action is not taken by those who receive the letter, it is likely that this would be seen as a deliberate act of non-compliance and lead to higher penalties.
You must ensure that you correctly report your tax position and pay your tax when it is due, whether or not you have received a letter from HMRC. We anticipate that when reviewing your tax position, HMRC may access crypto records from 2016 or earlier so it is critical that your tax reporting is fully up to date. If there are omissions, do not ignore them. HMRC look more favourably on those who come forward admitting genuine errors as compared with those whose errors they discover.
Ongoing, it is essential that you maintain detailed records of all crypto transactions and engage a crypto tax specialist to deal with your tax submissions. Due to the number of transactions that can arise, even when a few coins are bought or sold, this is a highly complex and specialist area in which points can easily be overlooked or misunderstood.
RPG Chartered Accountants incorporating Crawfords have significant experience and skills in advising on the taxation of crypto transactions and we are able to help crypto investors based in the UK.
Please contact us info@rpg.co.uk or call 0161 608 0000 for an informal chat about your own situation. We are based in Manchester but we look after clients based across the UK. You can read about our experience here and see our previous blogs on cryptoassets by clicking here.
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