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HMRC sets its sights on unpaid crypto tax
15 January 2024

As the crypto asset sector grows, with an annual growth rate predicted to reach around 12 per cent, taxpayers with digital assets need to remain tax compliant.

Tax regulations and knowledge have struggled to keep pace with this investment type’s rapid growth, resulting in significant levels of unpaid tax and underreported income.

In a bid to prevent tax avoidance and underpayment by holders of crypto assets, HM Revenue & Customs (HMRC) has taken the lead on a global campaign to combat tax avoidance related to crypto assets – the first of its kind.

Those with crypto assets need to understand how this campaign will work and what they can do to remain compliant.

The Crypto-Asset Reporting Framework (CARF)

CARF is the latest flagship crypto tax transparency programme, spearheaded by the UK and run by the Organisation for Economic Co-operation and Development (OECD).

Among other requirements, it mandates that crypto platforms, such as Coinbase and Gemini, report taxpayer information to HMRC and other European tax authorities.

This is not currently done, which has created significant potential for asset holders to pay less tax than they owe – deliberately or accidentally.

The OECD estimates that tax non-compliance could affect between 55 and 95 per cent of all crypto asset holders. The Government hopes that this will help to recoup millions of pounds of unpaid tax.

I own crypto assets – what do I need to pay?

In the UK, the taxation of crypto assets, such as Bitcoin and Ethereum, has become an important consideration for investors and traders.

HMRC does not recognise cryptocurrency as currency or money, but rather as property, which means it is subject to Capital Gains Tax (CGT).

As a private investor, when you sell, swap, spend, or gift crypto assets and make a profit, it is subject to CGT in the UK, regardless of where the asset is held or traded.

This means that if the value of the crypto assets has increased since you acquired them, you are liable to pay CGT on the gain.

The rate of CGT depends on your marginal tax band and can vary between 10 and 20 per cent.

Gains from crypto assets should be reported on your Self-Assessment tax return. You have an annual CGT allowance, and only gains above this allowance are taxable. Currently, the CGT annual exemption is £6,000, but this will be cut in half to £3,000 from April 2024.

It is crucial to keep detailed records of all crypto asset transactions, including dates, values, and types of transactions, as this information is needed for your tax return.

However, in some cases, such as mining or crypto trading as a business, profits may be subject to Income Tax rather than CGT. This will depend on the nature and frequency of your activities involving crypto assets.

Add expertise to your portfolio

Crypto assets are rapidly changing and subject to evolving regulations and tax rules.

Their value can cause complex issues because it can be volatile. This can make it hard to know whether you have made any capital gains or taxable income.

You may even be left wondering what to report and how to do it. We can provide the support that you need to stay compliant and benefit from your investment without concerns about a large tax bill or penalty.

For further guidance on your tax liability as a crypto asset owner, please contact us today.