HMRC are warning crypto investors to disclose

You may recall that many years ago we posted  about the tax treatment of cryptocurrency. Because there was no detailed guidance at the time our concern was that many individuals were unwittingly realising large gains that needed to be reported to HMRC. They appear to have been watching the price of bitcoin closely and now HMRC are warning crypto investors to disclose. 

HMRC are warning crypto investors to disclose

HMRC's previous attempts to seek information about crypto investors from Coinbase appears  to have been somewhat fruitless. However with the price of crypto rising dramatically and the January filing deadline looming, HMRC appear to be doubling their efforts to crackdown  on wayward crypto investors.

Apparently, HMRC are warning crypto investors to disclose by writing to them indicating  they have information which suggests they hold or have held, investments in cryptocurrency.

Despite the renewed popularity of cryptocurrency and published guidance from HMRC there still appears to be a misconception as to when tax applies to cryptocurrency transactions. 

The main examples of when taxes apply to cryptocurrency transactions are as follows:

  • When you sell cryptocurrency for fiat (eg; USD, or GBP). Any gains from these transactions are taxable, even if you don't withdraw the profits from the cryptocurrency exchange.
  • Exchanging one cryptocurrency for another, for example, Bitcoin to Tezos. You'll pay tax on these gains, even if you haven't converted the cryptocurrency back to fiat.
  • Gifting cryptocurrency. If you gift some cryptocurrency to a friend or family member (other than your spouse or civil partner). You will potentially be deemed to have disposed of your cryptocurrency for it's value at the date of gift.
  • Using cryptocurrency to buy goods or services. So be careful next time your tempted to spend bitcoin on Shopify

We understand that HMRC have helpfully provided examples in their correspondence(!). However they don't mention other potentially taxable activities that involve cryptocurrency such as receiving airdrops, mining or staking cryptocurrency.

What should I do if I have transactions to disclose?

If these transactions occurred in the tax year ended 5th April 2021, then our advice is to register for Self Assessment as soon as possible and try and file before the deadline of 31 January 2022.

Alternatively you have until 31 December 2021 gains to report under the Real-Time Transactions service instead of filing a Self Assessment return.

Where the transactions occurred in an earlier tax year then it will be necessary to make a disclosure under the Digital Disclosure Service.

Where a disclosure has to be made for an earlier tax year, our experience is that HMRC are relatively lenient at the moment. However, we would expect them to take an increasingly harder line over the coming months.

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

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