Declaring cryptoassets separately will help avoid ‘taxpayer confusion’    

The new requirements for taxpayers to declare cryptoassets separately have been welcomed by the accountancy industry. The logical next step is to issue ‘nudge letters’ to those with undisclosed crypto accounts, according to Waqar Shah, tax disputes partner at law firm Kingsley Napley LLP.

The Treasury recently announced that starting from 2024-25, individuals and trusts who had sold crypto assets would have to fill a separate section in their self-assessment tax return forms. Currently, cryptocurrencies are included in the reporting of a variety of “other” assets and tax exemptions.

Mike Hodges, partner at Saffery Champness, believes the move will help remind taxpayers that they need to be considering the tax position of their crypto holdings if they aren’t already and help to avoid “unnecessary taxpayer confusion.”

“Adding specific boxes and explanatory notes can only be a positive step in ensuring that the correct gains are declared in the correct way,” he notes.

This view is echoed by Shah, who says the UK is taking the lead from the IRS which introduced a similar requirement for US taxpayers. The US tax body also treats cryptocurrency gains in a similar way to property and investments, rather than currency. For this reporting period, it has also revamped the terminology for reporting cryptocurrency on income tax forms. Previously known as “virtual currencies”, these are now referred to as “digital assets”.

As in the US, the change is intended to aid HMRC in its attempts to reduce the crypto tax gap.

“The logical next step, of course, will be for HMRC to issue ‘nudge letters’ to those with undisclosed crypto accounts to encourage them to disclose their crypto assets in order to avoid high penalties and interest,” Shah adds.

It is reported that around 6% of UK adults own cryptocurrency, Shah argues that HMRC is unable to ignore this now as some have made “large gains sometimes outside of the tax net.”

The Spring Budget costing document estimates that this measure could raise an additional £10 million per year in CGT revenues.

Hodges believes that this move may partly be in anticipation of more taxpayers required to complete the capital gains pages in respect of their crypto gains, whereas previously their gains may have been covered by the more generous £12,300 exemption enjoyed until 2022-23.”

ATT’s response to cryptocurrency change

The Association of Taxation Technicians (ATT) has welcomed the announcement of the alteration to the self-assessment tax return for cryptoassets.

Senga Prior, chair of ATT’s Technical Steering Group, said: There has been significant growth in recent years in the number of people buying, selling, and investing in these virtual assets, and not everyone is aware that income and gains from such transactions are taxable.

Prior noted that presenting separate boxes for cryptoassets should make it easier for HMRC to spot those who have failed to report income or gains.

The ATT will encourage HMRC to try and raise awareness of the change via social channels such as YouTube.

“We are disappointed that the changes couldn’t have been introduced sooner, given that 2022-23 tax returns have not yet been released. It will therefore be another two years before HMRC starts to get information that it can use,” Prior added.