Whilst investing and trading in cryptocurrency has become increasingly popular over the last few years, the tax treatment of any profits made through these activities is poorly understood.
Many crypto investors mistakenly believe they do not have to pay tax on any profits and this is certainly not the case!
As there are potentially huge sums of money involved, this has raised the profile of cryptocurrency investment with HMRC.
HMRC are keen to ensure that all individuals and businesses are paying the correct amount of UK tax on their cryptocurrency and other cryptoassets so if this is you, it’s vital that you are aware of your tax obligations.
HMRC to issue ‘nudge’ letters
HMRC will begin issuing ‘nudge’ letters to crypto investors which will warn investors to check their crypto transactions have been properly reported and that the correct tax is being paid.
They will be used to encourage investors to examine whether they have paid the correct sums of capital gains tax (CGT) and income tax on their crypto holdings.
HMRC may believe large amounts of CGT and income tax generated from cryptocurrency investments are not being declared for tax purposes.
A spokesperson for HMRC said “We want to help people get their tax affairs right and we regularly undertake activity to educate customers who might need help. Our letter asks cryptoasset holders to review their transactions to ensure that they are declared correctly.”
There is likely an increasing amount of hidden wealth thanks to the rise of cryptocurrencies with many investors holding the mistaken belief that HMRC is unable to find out about their crypto investments and any gains they have made.
However, HMRC has the ability to gain a full list of cryptocurrency holders by sending data requests to UK-based cryptocurrency exchanges and other financial institutions.
Act now
Investors should come forward now to declare their cryptocurrency income as those who are later found to have misreported their crypto holdings could be at risk of prosecution.
If you are involved in crypto investing in any way and you need help to get your crypto tax right, or if you have are unsure how to respond to a ‘nudge’ letter from HMRC get in touch.
Disclaimer
The information was correct at time of publishing but may now be out of date.
