Is turmoil in crypto markets masking the need to pay tax?

There has been much turmoil recently with the collapse of crypto currency exchange FTX and the arrest of its founder Sam Bankman-Fried, now to be extradited to the US to face charges.  FTX was the world’s second biggest exchange with an estimated 1.2 million registered users but many are now unable to withdraw their funds.

This comes about after various other scandals earlier in 2022.

This activity has distracted attention away from the messages issued at the end of 2021 and start of 2022 from HMRC in which they warned crypto investors to check they had paid the correct amount of tax.

This situation has not gone away and every week we speak to crypto investors who had no idea that they may be liable for tax due on profits made on their trading.

There is still a lot of misunderstand regarding the taxation of crypto assets.  For example:

• Crypto investors need to bear in mind that if they made gains in one particular tax year but in the following year the assets fall in value, there may still be capital gains tax to pay for the earlier year.
• The potential tax situation for any assets held within FTX following its collapse will need to be considered for each person on an individual basis.
• The taxation of staking is particularly complex and specialist advice should always be taken

Generally speaking, 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 “nudge” 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 cryptoasset 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.