A North East finance expert is urging people who’ve made money from cryptocurrencies to get their tax affairs in order as HMRC steps up efforts to identify undeclared ‘cryptogains’.
Chris Moir, associate director and head of personal tax at RMT Accountants & Business Advisors, was speaking as HMRC begins automatically collecting information on all users of cryptocurrency exchanges, the online marketplaces that allows users to buy, sell and trade cryptocurrencies for both other digital assets and traditional currencies.
The change follows the UK’s adoption of the Crypto-Asset Reporting Framework (CARF) at the start of the year, which will lead to the automatic international exchange of data among tax authorities and which is expected to raise up to £315 million in extra tax revenue by 2030.
Research by the Financial Conduct Authority on consumer attitudes and behaviours towards crypto found that one in eight UK adults now own such assets, with the average value of their holdings being over £1,800.
HMRC has also been increasing its investigations into whether people are paying all the tax due on gains made through crypto trading in recent months, so that any potential shortfalls can be identified and pursued.
Growing numbers of HMRC ‘nudge letters’ have been sent to individuals that it believes could be under-reporting or not reporting what they’ve earned in this way, with a view to encouraging voluntary disclosures before a formal investigation begins.
This marks a clear shift from education to enforcement, with HMRC increasingly expecting taxpayers to proactively disclose crypto-related gains.
Chris Moir says: “HMRC doesn’t consider cryptocurrency to be money or currency, but treats it as property, meaning it is subject to Capital Gains Tax and, in some cases, Income Tax and National Insurance as well.
“Disposals of crypto assets, such as selling them for cash, exchanging one for another, using them to pay for goods or services or gifting them to anyone other than a spouse or civil partner, can create a ‘taxable event’ on which tax is due.
“The unregulated nature of the crypto sector has so far often made it an attractive option for those that might not want to reveal all their assets, while any gains being made from such assets on platforms that allow people to use them anonymously have been difficult for HMRC to identify.
“With this situation changing, it’s essential that everyone understands their tax obligations around these assets and keeps proper records of their crypto transactions, regardless of whether they’re a casual trader, a long-term investor or involved in crypto mining or staking.”
Chris Moir is now advising anyone who thinks their cryptogains will put them in the spotlight to ensure they’re declaring all their income in the appropriate way and to get qualified advice if they’re unsure where they stand.
He continues: “With assets like Bitcoin and Ethereum now increasingly part of the mainstream, HMRC is naturally keen to ensure it receives all the tax revenues it is entitled to from them.
“As with any dealings you have with HMRC, it’s essential that anyone who believes they may have declarations to make up to date information about their financial affairs to help avoid potential penalties and time-consuming investigations.
“HMRC’s Crypto Asset Disclosure Service allows individuals who have previously failed to declare gains arising from crypto transactions to report unpaid tax voluntarily.
“Coming forward in this way can reduce penalties and is likely to result in a more favourable outcome than if HMRC identifies the issue as part of a formal investigation.”
RMT provides the full range of financial and business advisory services through its specialist tax, accountancy, corporate finance, medical & healthcare and recovery & insolvency teams, and is part of the Sumer Group, the UK’s fastest-growing accountancy firm.