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AAB / Blog / Crypto Assets – HMRC seeking ownership declarations
BLOG7th Jul 2021
Following HMRC’s drive to aid the economic impact of the COVID 19 pandemic and a surge in recent enquiries into tax affairs of individuals and companies alike, HMRC have confirmed that e-money value transfer systems and Crypto assets are on their watchlist of assets they will be looking closely into. This is particularly the case, since it is known such assets are commonly used by organised crime. HMRC now receives information from crypto exchanges on transactions carried out by crypto asset investors based in the UK and may also receive information on crypto asset transactions under the Common Reporting Standard.
HMRC will be using this information to help check whether taxable transactions have been correctly reported and subjected to tax, including capital gains tax on gains, and income or corporation tax on profits, mining fees and other earnings.
It is interesting that HMRC now also specifically ask for confirmation of Crypto assets held when individuals are asked to complete a “Statement of all Assets”. Such a form is typically requested in the event of an HMRC enquiry into an individual’s tax affairs, and it seems HMRC are keen to make it clear to taxpayers that such assets are within the UK tax regime and must be declared or face potential prosecution. Ignorance is definitely no longer an excuse.
What is a Cyrpto asset or crypto currency?
There are many different types of crypto assets. ‘Cryptocurrencies ’ such as Bitcoin (BTC) are just one variation.
A cryptocurrency is a type of crypto asset which shares many similarities with other currencies.
Mining activities
HMRC’s view is that:
Where mining is a trading activity the exchange tokens form part of trading stock and normal trading rules about transfers to and from stock apply.
Crypto assets exchanges may only keep records of transactions for a short period, or the exchange may no longer be in existence when an individual completes a tax return. The onus is on the individual to keep their own records for each crypto asset held in the event of a HMRC enquiry.
Types of Records
Tax Exposure in dealing with Crypto Assets
Whether profits are taxed as income or capital gains depends on whether the individual is trading or investing. In most cases, individuals hold crypto assets as a personal investment, usually for capital appreciation, or to make purchases and therefore individuals will be liable to pay Capital Gains Tax when they dispose of their crypto assets. Capital Gains Tax is charged at 10% or 20% depending on whether the individual is a basic or higher rate taxpayer.
However, in the event individuals acquire crypto assets from their employer as a form of non-cash payment or the individual is mining their crypto assets then Income tax and Class 1 National Insurance will be payable.
If it appears that tax has not been accounted for on crypto asset transactions, a voluntary disclosure to HMRC is generally the best course of action in order to obtain the best possible settlement terms, including minimising penalties and interest. Those who are found to have concealed assets from HMRC can expect to be prosecuted.
If you would like to discuss any potential tax implications of trading or investing in crypto currency please contact Carol Edwards or your usual AAB contact.
How AAB can help
Our team support a diverse array of individuals such as employed professionals, business owners, families and international sports stars. As AAB clients, they all benefit from absolute confidentiality and share a unified goal of optimising and safeguarding their personal wealth. Our services extend far beyond mere tax return completion. In addition to standard personal tax compliance, our dedicated team of personal tax specialists delivers dependable and practical tax advice, ensuring full compliance and optimal positioning.
How AAB can help you with
HMRC’s powers allow them to investigate the tax affairs of any individual or business. We understand this can be difficult and distressing, but we’ll support you throughout an enquiry, working hard to minimise any penalties. Our team members have many years’ experience of dealing with tax investigations, from both working for HMRC and spending a significant amount of time advising our clients.
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