HMRC’s Campaign to Crack Down on Unreported Cryptoassets

Introduction: How are Cryptoassets taxed

Late last year, HMRC launched a new campaign to targeting individuals who held  Cryptoassets with unreported tax liabilities on those  assets. This campaign is the latest in several recent campaigns launched by HMRC to encourage taxpayers with previously undeclared tax liabilities to voluntarily bring their tax affairs up to date.

The latest research estimates that 10% of UK adults hold Cryptoassets. Most individuals holding Cryptoassets will be within the scope of Capital Gains Tax (CGT) on these assets, with capital gains subject to CGT at either 10% or 20%, and any capital losses arising either offset against other gains in the same tax year or carried forward to offset against future gains. In exceptional circumstances, an individual will be deemed to be trading in Cryptoassets in which case any gains and losses will be subject to the trading rules for Income Tax instead of being subject to CGT. Such cases will be rare, and it is expected that most individuals will be liable to CGT. The CGT annual exemption if available, was £6,000 for 2023/24 and has now reduced to £3,000 in 2024/25, and can be offset against Cryptoasset gains.

Further details on how Cryptoassets are taxed in the UK can be found here.

Cryptoassets Reporting Framework

Whilst Cryptoassets have in the past been largely untraceable, HMRC now receive much more information. From 2027, this will further increase as it is anticipated that HMRC will also start to receive information about transactions from Cryptoasset platforms under the new  Cryptoasset Reporting Framework (CARF). To date, 48 countries have signed up to the CARF.

Individuals who have previously unreported tax liabilities on Cryptoassets should take immediate action to report these liabilities to HMRC. Where HMRC deem non-disclosure to be deliberate, they can go back up to 20 years. This reduces to 6 years where an individual did not take reasonable care, and further reduces to a maximum of 4 years where an individual is deemed to have taken reasonable care. Penalties will usually be lower for unpromoted disclosures, with higher penalties often levied where the disclosure is deemed to be prompted by HMRC.

Reporting obligations are also expected to become more thorough in coming years. At the March 2023 Budget, HMRC announced changes to self-assessment tax returns and from 2024/25  Cryptoasset disposals will need to be separately identified on the CGT pages of the return. In theory, this will make it easier for HMRC to identify those that have previously traded Cryptoassets and enquire into cases where they believe the taxpayer has not fully disclosed all of their Cryptoasset transactions.

Get in Touch

If you have any questions on reporting and compliance matters relating to Cryptoassets and other digital assets and your tax obligations, or would like assistance in disclosing previously unreported tax liabilities on Cryptoassets to HMRC,  please get in touch with our specialist tax team who will be happy to assist you.

Photo by Michael Förtsch on Unsplash