Crypto Assets? HMRC have their eye on you…

Cryptocurrency and crypto assets are increasingly becoming a common investment opportunity for many individuals and businesses. Whilst most investors will be ‘testing the water’ with any gains arising from the Capital Gains Tax ‘CGT’ annual exempt amount of £12,300 each year, there are others who are lucky enough to be realizing substantial gains which do need to be reported to HMRC. Crypto also provides privacy and anonymity, which can, unfortunately, attract criminal activity.

In light of this, HMRC has assembled a technology-focused, dedicated team, trained to use their powerful digital tools to gather data and investigate tax fraud and tax evasion cases. They have also confirmed they have opened more than 20 criminal investigations involving crypto assets and a recent VAT fraud investigation connected to Non Fungible Tokens (NFTs), which led to arrests on suspicion of attempting to defraud over £1.4M. 

NFTs can be used as certificates of ownership for virtual or physical assets and have a unique digital signature, allowing them to be bought and sold using traditional currency or crypto. This particular fraud case involved 250 fake companies and led to the first UK law enforcement to seize an NFT. There is little doubt that HMRC has actively strengthened its defenses against a wave of crime encouraged by the unregulated market.  

HMRC will continue to make use of the wide range of information powers to gather information on UK resident Crypto investors, either from the UK or global jurisdictions. HMRC will likely have already received information regarding those holdings (or if not, they will do so at some point in the future). 

Who has a reporting Obligation? 

Ultimately, individuals who are involved in crypto assets should actively seek professional advice from an appropriately experienced tax advisor. The UK tax position associated with Crypto can be particularly complex and requires active management to ensure you do not create an unexpected tax result. If you haven’t already reported transactions, then volunteering to disclose earlier years’ gains and losses will allow for negotiations with HMRC to reduce possible penalties. This will not be the case if HMRC asks you first about these transactions, usually following the discovery of digital information by their specialist teams. 

If you are involved in any of the following activities, then it is likely you have a reporting requirement and/or tax liability:

• Crypto-trading (whether for FIAT or crypto-for-crypto exchanges) and margin trading
• Participating in mining, staking and liquidity pooling
• Trading in CFDs, options and futures
• Creating and/or trading in Non-Fungible Tokens (NFTs), whether for FIAT, crypto or other payments 
• Providing services in return for crypto assets 
• Participating in airdrops

Our tax investigations team at AAB are perfectly placed to review their position and can assist in making a voluntary disclosure to HMRC where there is an unreported liability. 

How is a disclosure made to HMRC?

HMRC have an online disclosure facility designed to enable taxpayers to make voluntary disclosures. They must effectively self-assess tax underpaid, interest and the correct penalty. The rate of penalty is determined by the perceived taxpayer “behaviour” that led to the non-disclosure and this is where professional advice is crucial to ensure the best possible approach is taken, particularly when penalties can be up to 100% of the tax due, more where the assets are offshore. 

We would always take a careful, considered approach to any disclosure, using our enquiry and disclosure experience to allow for the best chance of a favourable outcome. We work closely with clients to support them throughout this process, consistently updating them and liaising with HMRC to help accelerate and reach conclusion. 

If you require assistance or would like further information please contact Lynn Gracie or Carol Edwards, who are members of our tax investigations tax team, or your usual AAB advisor.

Find out more about our tax investigation service.