HMRC has launched a specific disclosure route for those with unreported taxes on cryptoassets to bring their affairs up to date.
HMRC has recently launched a new voluntary disclosure route to allow individuals with undeclared capital gains tax (CGT) or income tax relating to cryptoassets to come forward and correct their affairs. This follows a series of targeted letters over recent years to individuals that HMRC believes hold cryptoassets but who have not declared any income or gains from them.
HMRC is expecting that most individuals holding cryptoassets will be within the scope of CGT. While it is possible to be “trading” in cryptoassets, HMRC expects that individuals will be buying, selling and exchanging tokens with sufficient frequency only in “exceptional circumstances”.
Previous letters to individuals have highlighted HMRC’s concerns that individuals are unaware that the following activities could create a disposal for CGT purposes:
- selling cryptoassets in exchange for regular, “fiat” currency such as UK sterling or dollars
- exchanging cryptoassets for other cryptoassets
- gifting cryptoassets to anyone other than a spouse or civil partner
- using cryptoassets to buy goods or services.
In addition, in recent years, decentralised finance (“DeFi”) activities have also become popular, with cryptoasset investors lending or “staking” their holdings in return for “interest-like” rewards. While much of this remains subject to consultation, HMRC provided additional guidance on DeFi last year, setting out how it considers these lending and borrowing transactions should be taxed.
Fortunately, FCA research suggests that the mean value for UK investors with cryptoassets is in the region of £1,595, low enough for the CGT annual exemption to cover many associated gains – but this exemption is due to reduce to only £3,000 for tax year 2024/25.
Time limits and disclosure routes
The usual rules apply when it comes to determining how far back an individual needs to go to correct their affairs. These require individuals to look back:
- 4 years where they have taken reasonable care
- 6 years where reasonable care was not taken
- 20 years where they deliberately misled HMRC about their income or gains or there has been a failure to notify HMRC of a new source of income or gains.
If you have any concerns about cryptoassets or any other tax compliance matters, the DSG tax team has the skills, experience and technological tools to advise you on your tax position and, if necessary an appropriate plan of action taking into account the various options.
It seems clear that cryptoassets will continue to attract increasing scrutiny from HMRC. For 2024/25 tax returns onwards, cryptoasset disposals will need to be separately identified in the CGT pages, making it easier for HMRC to identify when disclosures have been missed and take action. In future years, new reporting requirements, across 48 countries, will see HMRC receiving transaction information directly from cryptoasset platforms.