The United Kingdom’s HM Revenue and Customs (HMRC) has recently seen the first wave of crypto investors come forward to declare unpaid taxes on their cryptoassets.
Since the launch of HMRC’s ‘cryptoasset disclosure facility‘ in November 2023, 38 individuals have admitted to underpaying tax on income from cryptoassets, according to national accountancy group UHY Hacker Young.
TLDR
38 crypto investors have come forward to admit underpaying tax on cryptoassets since HMRC opened their ‘cryptoasset disclosure facility’ in November 2023.
These individuals disclosed a total of £428,717 in unpaid tax, averaging £11,282 per disclosure.
HMRC has stepped up efforts to target crypto as a source of tax revenue amid the dramatic price rally in the crypto market over the past 12 months.
Individuals who fail to disclose their crypto earnings through HMRC’s new disclosure facility face penalties up to 100% of the unpaid tax value.
OECD’s Cryptoasset Reporting Framework, set to take effect from 2027, will provide for the automatic sharing of information on cryptoasset transactions with the taxpayer’s country of residence and cryptoasset service providers.
These 38 taxpayers have disclosed a total of £428,717 in unpaid tax, with an average of £11,282 per disclosure.
The new online disclosure service provided by HMRC allows individuals to report unpaid tax on income or gains from various types of cryptoassets, including exchange tokens like Bitcoin, Ethereum, and Tether, as well as non-fungible tokens (NFTs) and utility tokens.
Neela Chauhan, Partner at UHY Hacker Young, suggests that many crypto investors may have been unaware of their obligations to pay Capital Gains Tax and, in some cases, Income Tax on the income received from the sale of cryptoassets.
As the crypto market has experienced a significant price rally over the past 12 months, HMRC has intensified its efforts to target crypto as a source of tax revenue.
The value of Bitcoin, for example, has risen by more than 150% in the past year, reaching a high of £57,129.77 in March 2024, a substantial increase from the low of £19,825.78 in June 2023. With the new disclosure facility having been in operation for just five months, Chauhan expects to see a much higher value of disclosures in the coming months.
Individuals who fail to disclose their crypto earnings through HMRC’s new disclosure facility face the risk of penalties worth up to 100% of the unpaid tax value.
The rapid growth of the cryptoasset market has posed significant challenges for government authorities in tackling tax evasion, tax avoidance, and non-compliance.
HMRC’s new facility comes ahead of global clampdown efforts set to take effect from 2027, as part of the Organisation for Economic Co-Operation and Development (OECD)’s Cryptoasset Reporting Framework.
This framework aims to address crypto tax evasion on a global scale by providing for the automatic sharing of information on cryptoasset transactions with the taxpayer’s country of residence and cryptoasset service providers.
48 territories, including some previously seen as “offshore” such as Switzerland, Singapore, and the Cayman Islands, have signed up to the code.
As tax authorities around the world, including HMRC, implement increasingly sophisticated reporting methods, individuals are likely to face higher risks of investigations and heavy fines.
Chauhan advises those earning income from crypto investments to seek professional advice and be proactive in declaring their position to HMRC, rather than waiting to see if their crypto profits will be discovered.
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