HMRC Zero in On Unpaid Taxes on Crypto Asset Disposals

HMRC have recently indicated their intention to pursue individuals for failing to declare the disposal of crypto assets, resulting in unpaid tax remaining due. A series of nudge letters have previous been issued earlier this year, with a new batch due to be sent in the up-coming weeks. Considering this active campaign action from HMRC, if you are trading in crypto assets, it is important to ensure accurate reporting on any crypto disposals you make.

HMRC Nudge Letters

Nudge letters are being sent to individuals whom HMRC believe have failed to disclose profits made on disposals of crypto assets. From data reports received from crypto exchanges, HMRC have gained insights on taxpayers’ who have made crypto disposals. HMRC are interceded in such transactions as a disposal subsequently accrues Capital Gains Tax (CGT) implications.

Each disposal of crypto assets—whether through selling, trading, or using them for purchases—can trigger a taxable event. According to HMRC, a disposal occurs whenever you engage in activities such as:

1. Selling crypto assets for fiat currency

When you sell your crypto assets, such as Bitcoin, for fiat currency like GBP, you are disposing of those assets. This transaction is straightforward and often the most common type of disposal.

2. Exchanging one crypto asset for another

Trading one cryptocurrency for another, such as swapping Ethereum for Litecoin, also constitutes a disposal. Even though you’re not converting to fiat currency, the exchange still triggers a taxable event.

3. Using crypto assets to buy goods or services

Utilising cryptocurrencies to make purchases is another form of disposal. For instance, using Dogecoin to buy a coffee or Bitcoin to pay for online services involves disposing of the crypto assets, thereby triggering a taxable event.

4. Giving away your crypto assets to someone who is not your spouse or civil partner

If you gift your crypto assets to someone other than your spouse or civil partner, it is considered a disposal. This action is therefore treated as having received the pound sterling value of the crypto asset given away.

I Have Received a Nudge Letter From HMRC… What Do I Need to Do?

It is important not to simply ignore these letters. If you have received a nudge letter from HMRC, appropriate action will need to be taken and it is strongly advised to seek specialist advice. WTT’s Director of Tax Investigations, Tom Wallace explains here;

“HMRC receive information from multiple sources, and the belief that Crypto assets are somehow held anonymously is a flawed one.  If you have received such a letter, HMRC likely have information that you have undertaken a disposal, and whether that is correct or indeed whether a tax liability arises, the position will need careful consideration and an appropriate response provided to satisfy them in such a way that further action or penalties are mitigated in the best way possible.“

When in receipt of a notice from HMRC, it’s important to respond promptly and provide the requested records. Being proactive and transparent can help resolve any issues efficiently and minimise potential penalties.

If you think you may be affected or have received a nudge letter and need personalised guidance on ‘next steps’, get in touch with us today. Our professional advisors can provide expert advice tailored to your specific circumstances, helping you by liaising with HMRC in managing your crypto tax obligations.