HMRC is pressuring crypto exchanges to provide customer data and transaction histories in order to claim unpaid taxes crypto-traders may owe.
Three exchanges that do business in the UK – Coinbase, eToro and CEX.IO – have reported that they have received letters from HMRC in the last week requesting the data.
One industry insider, speaking to Coindesk said: “HMRC is looking to work with exchanges when it comes to finding information on people who have been buying and selling crypto. I think they will only go back a couple of years, two or three years.
“If they [HMRC] do only go back two or three years, I think the interesting thing here is, that the individuals who went into crypto very early on in 2012-13 will not be affected. The ones who probably made the largest gains won’t be affected, it will be the people who came in around the time crypto peaked.”
Any trader is required by law to pay capital gains tax (CGT) on any profit they make on the coins’ increase in value since the point they purchased it.
However, the anonymous nature of trading cryptocurrency means that it is difficult for authorities to track any tax liabilities.
CoinDesk submitted a Freedom of Information (FOI) request to learn more from HMRC about their own request for data from the exchanges, but were denied by HMRC.
HMRC said that the demands for information, and disclosing such information, could jeopardise the assessment or the collection of tax, but did confirm that such demands were within its remit, saying: “These exchanges can retain information on their clients and the transactions that they have completed.
“These transactions may result in potential tax charges and HMRC has the power to issue notices requiring exchanges to provide this information.”
In addition, an HMRC spokesman said: “We want to help people get their tax affairs right and believe that taxpayers want to get it right. HMRC regularly gathers data from a range of information sources using powers provided by parliament.
“Data collected by HMRC is used to improve the integrity of the tax system and to identify those that have failed to declare their gains.”
The requests come as no surprise, with other countries also looking to reclaim tax owed from the trading of cryptocurrencies.
Iqbal Gandham, the UK managing director of Etoro, even welcomed HMRC’s actions, saying that it gives cryptocurrencies more legitimacy.
“Taxing crypto is the first step to bringing it in line with other investments, solidifying its position as an emerging asset class,” he said. “I expect regulation will come next, which will be a good thing for the industry and for mass adoption.”
HMRC’s actions mirror that of the USA’s tax organisation, the IRS, who recently announced that 10,000 American cryptocurrency users would receive a letter reminding them to pay taxes on their earnings, warning that recipients of the letter should take the warning “very seriously”.