HMRC has issued a second stern warning to cryptocurrency users, urging them to declare and pay taxes on their digital assets. The move comes amid growing concerns that many crypto owners may be unaware of their tax obligations.
HMRC’s latest directive requires crypto users to file a Self Assessment tax return before the 31 January deadline and pay any tax due on gains.
The tax treatment of crypto assets can be complex, but in simple terms, HMRC sees the profit or loss made on buying and selling of exchange tokens as within the charge to Capital Gains Tax (CGT).
Only in exceptional circumstances will HMRC accept that buying and selling of crypto amounts to a trade for tax purposes.
Implications for users
For individuals, this means that if you have sold crypto for a profit during the 22-23 tax year, you may have reporting and tax obligations, and need to consider whether you need to file a tax return before 31 January 2024. It is also necessary to declare crypto losses if individuals want to offset those losses in future tax years.
Dawn Register, Head of Tax Dispute Resolution at BDO, highlighted the tax authority’s growing interest in those people who have made gains from crypto assets but have failed to declare them.
“If people don’t declare what they are required to and HMRC discovers that additional tax is due, it can charge late payment interest in addition to tax-geared penalties of up to 100% of the tax – or more if the holding was based offshore,” she warned.
Reporting gains and losses
If you have sold crypto for a profit during the tax year, you may need to file a Self Assessment tax return. The reporting threshold for crypto trades is £49,200. If your proceeds from crypto trades exceed this limit, you must submit a tax return, even if you have not made a gain.
Additionally, individuals must declare any crypto losses if they wish to offset those losses in future tax years. It is essential to accurately report all gains and losses to avoid penalties and ensure compliance with tax regulations.
To meet your tax obligations for crypto gains, you must file a Self Assessment tax return. The deadline for filing tax returns and paying any tax owed is January 31, 2024.
Different crypto activities
The tax obligations for crypto users vary depending on the activities they engage in. Here are some common scenarios where tax may be due:
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Receiving cryptoassets from employment: If you receive cryptoassets as part of your employment, you may be liable to pay tax on the value of those assets.
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Holding cryptoassets as part of a trade: If you actively trade cryptocurrencies as a business, the profits you make may be subject to income tax rather than capital gains tax.
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Exchanging or selling cryptoassets: When you exchange one type of cryptoasset for another or sell your cryptoassets for fiat currency, you may incur tax liabilities on any gains made.
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Using cryptoassets for purchases: If you use your cryptoassets to make purchases, you may need to account for any gains made at the time of the transaction.
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Gifting or donating cryptoassets: The act of gifting or donating cryptoassets may also have tax implications, and it is essential to consider these when making such transactions.
HMRC’s disclosure facility for undeclared crypto gains
To encourage individuals to declare previously undeclared crypto gains, HMRC has established a dedicated disclosure facility. This facility allows individuals to come forward and declare their gains while potentially reducing penalties.
If you have undisclosed crypto gains, it is advisable to take advantage of this facility and rectify your tax position to avoid potential legal consequences and mitigate financial penalties.
Adapting to change
As the crypto industry continues to evolve, tax regulations and obligations may also change. It is crucial for crypto users to stay informed about any updates or amendments to tax laws relating to cryptocurrencies.
By staying up to date with the latest developments and being proactive in meeting tax obligations, individuals can navigate the crypto tax landscape with confidence.