HMRC has taken a decisive step in its fight against tax avoidance in the crypto industry. On November 29, HMRC launched a new campaign urging crypto investors to come forward and pay any outstanding taxes they owe.
The campaign aims to address the growing concern that many crypto asset owners may be unaware of their tax obligations and have failed to disclose their taxable gains properly.
The tax treatment of crypto assets can be complex, but HMRC has provided guidance to help individuals navigate their tax obligations. In general, HMRC views the profits or losses made from buying and selling exchange tokens as subject to Capital Gains Tax (CGT).
However, it is essential to note that HMRC will only consider the buying and selling of crypto assets as a trade for tax purposes in exceptional circumstances.
If you have sold crypto assets for a profit during the tax year, it is crucial to assess your reporting and tax obligations. You may need to file a tax return to disclose your gains properly.
It is estimated that one in ten UK adults holds crypto assets, with ownership being more prevalent among men and concentrated among younger age brackets.
HMRC’s concern
The launch of the new disclosure facility by HMRC underscores its concern about non-compliance among crypto asset owners and its determination to recover unpaid tax. Many individuals, particularly young adults, may be unaware of their tax obligations when it comes to crypto assets.
This campaign presents an opportunity for individuals to rectify any past mistakes and comply with their tax obligations. To understand their tax position, individuals will need to obtain reports from their financial advisers or online platforms.
In certain circumstances, seeking specialist advice on the most appropriate disclosure facility to use may be advisable.
Penalties and interest for non-disclosure
Failure to disclose unpaid tax on crypto assets can result in additional penalties and interest. Depending on the reason for non-disclosure, HMRC can assess additional tax payable for several years, with up to 20 years available for assessment. Late payment interest will also be charged on any additional tax due.
HMRC has the authority to impose tax-geared penalties of up to 100% of the tax owed, or even more in cases where the assets were held offshore. It is essential for crypto investors to come forward and disclose any unpaid tax to avoid these penalties and interest charges.
Automatic information exchange and reporting framework
In the near future, HMRC will begin receiving automatic information about individuals’ trading activities from crypto platforms. This development follows the UK’s commitment to implementing the Organisation for Economic Co-operation and Development (OECD) Crypto-Asset Reporting Framework (CARF) by 2027.
The CARF aims to facilitate the automatic exchange of tax-relevant information across international borders.
The implementation of the CARF will require crypto platforms to share taxpayer information with tax authorities, enabling better monitoring and enforcement of tax obligations.
This collaborative effort with 48 countries aims to combat criminals’ use of crypto-assets to evade and avoid tax payments, ultimately securing the revenue needed for essential public services.
Compliance and seeking specialist advice
As the ownership of crypto assets continues to grow, it is crucial for individuals to understand and comply with their tax obligations. The launch of this disclosure facility provides an opportunity for asset owners to rectify any past non-compliance and fulfil their tax responsibilities.
To navigate the complexities of crypto taxation adequately, individuals are advised to seek reports from their financial advisers or online platforms. In certain situations, seeking specialist advice on the most appropriate disclosure facility to use can be highly beneficial.