HMRC has stepped up pressure on cryptocurrency speculators it suspects have underpaid tax on their assets.
The tax office has been collecting data on crypto traders for the past few years, and is now targeting them specifically to check if they have paid tax correctly.
HMRC has sent a total of 8,329 ‘nudge’ letters to individuals it suspects owe tax on their crypto assets, according to accounting firm UHY Hacker Young.
Pay up: HMRC sent over 8,000 nudge letters to cryptoasset holders who it suspects may have underpaid tax
Some crypto holders may be unaware they owe capital gains tax on the sale of assets, or even income tax on their holdings if HMRC deems them a crypto ‘trader’.
Traders could subject to paying income tax if they mine cryptocurrency, gain interest from staking their cryptocurrency or regularly trade significant amounts.
HMRC recently urged Britons to come forward and disclose any unpaid tax on crypto assets, like exchange tokens, NFTs and utility tokens.
The voluntary disclosure mechanism, launched in December 2023, encourages people to tell HMRC about any unpaid tax on income or gains made from their crypto holdings.
Neela Chauhan, partner at UHY Hacker Young said the ‘nudge’ letters are likely to be followed by ‘enquiry’ letters from HMRC, which will ask for specific information from taxpayers about their crypto holdings.
‘HMRC is only going to become more determined to intensify its tax crackdown on crypto investors in the next few years,’ she said.
‘As HMRC gains access to more data, crypto traders will no longer be able to evade the tax authority’s attention.
‘Non-compliance may arise because crypto investors do not know what tax they owe on their digital assets.
‘While HMRC is willing to offer some forbearance in the short term, such as through its voluntary disclosure mechanism, it is unlikely to be so tolerant for long.
‘Investors need to be fully aware of what tax they need to pay or they will be issued with a heavy penalty on top of the tax they already owe.’
In July 2022, research from HMRC found that one in 10 Britons held crypto assets.
Ownership was more prevalent among men than women, and was more concentrated in younger age brackets.
However, around three in five UK crypto asset holders did not know the tax implications of trading in crypto.
Rules around crypto assets and tax can be complex, but generally HMRC treats crypto like any other financial assets.
HMRC seems to be regularly issuing ‘nudge’ letters to encourage taxpayers to look more closely at their tax affairs.
Last year, there was a sharp increase in the number of letters sent to online marketplace sellers who it believed may not have declared tax.
New rules which came into force on 1 January require platforms to collect information about users, which they will have to report on directly to HMRC from January 2025.
HMRC already had the power to request this information, but new rules mean it will happen automatically – making it easier for the taxman to go after resellers who are failing to pay tax.
