HM Revenue & Customs are planning to send “nudge” letters to crypto investors, warning them to check they have paid the correct amount of tax, according to a recent article in the Financial Times.
HMRC are quoted, explaining that their aim was to highlight areas that “people may not be aware of when considering if they have to pay any tax” and described this as an “educational approach”.
This response was to be expected following HMRC’s publication in March 2021 of their Cryptoassets manual which sought to help people understand the tax implications that can arise from transactions involving cryptoassets. Specifically, it explains HMRC’s interpretation of the law as it relates to cryptoassets.
Many of the crypto exchanges are now open and transparent with easy access to historic transactions and this provides HMRC with greater access to information. A landmark example of this was Coinbase’s deal with HMRC in the UK in which Coinbase agreed to share data with HMRC relating to customers who received more than £5,000 equivalent of cryptocurrency. This and similar access with other crypto exchanges allows HMRC far greater reach in terms of investigating tax errors or fraud.
Indeed the tax authorities in other jurisdictions such as Australia and the US already send pre-emptive letters to crypto investors.
It’s important to understand that receiving a nudge letter doesn’t necessarily mean there is an error in your tax return; instead it serves to highlight your obligations and you need to ensure that you respond correctly to HMRC. If action is not taken by those who receive the letter, it is likely that this would be seen as a deliberate act of non-compliance and lead to higher penalties.
You must ensure that you correctly report your tax position and pay your tax when it is due. We anticipate that HMRC may be looking back to crypto records from 2016 so it is critical that your records are fully up to date. If there are omissions, do not ignore them. HMRC look more favourably on those who come forward admitting genuine errors as compared with those whose errors they discover.
Ongoing, it is essential that you maintain detailed records of all crypto transactions and engage a crypto tax specialist to deal with your tax submissions. Due to the number of transactions that can arise, even when a few coins are bought or sold, this is a highly complex and specialist area in which points can easily be overlooked or misunderstood.
RPG Chartered Accountants incorporating Crawfords have significant experience and skills in advising on the taxation of crypto transactions. Please contact us email@example.com or call 0161 608 0000 for an informal chat about your own situation. You can see our previous blogs on crytoassets by clicking here.
About the Author: Daniel Prais is a highly experienced Chartered Accountant with particular expertise in technology, cryptoassets, property and healthcare. Daniel’s blogs on cryptoassets can be seen here. He and his specialist teams provide accountancy, tax and general advisory support for clients based across the UK. Previously a partner at Crawfords Chartered Accountants, he joined the board of directors at Royce Peeling Green Accountants in Manchester when the two firms recently merged. When not in the office, Daniel is found out on the hills of the Lake District and Peak District. Contact firstname.lastname@example.org www.rpg.co.uk
The post Crypto Tax UK: HMRC to Send “Nudge” Letters to Crypto Investors appeared first on Blockonomi.