As professional advisers, a question we are being asked a lot at the moment is “Do I have to pay tax on my Crypto-asset investments”. The simple answer is yes, which then results in the following response “But how will they know?”.
Essentially, HM Revenue & Customs (HMRC) rely on the integrity of taxpayers to do the right thing and report any income and gains through an annual Tax Return.
One of the myths around investing in Cryptoassets is that these transactions are hidden and cannot be tracked. However, almost all Cryptoasset investment is done through a system of online ledgers, which will show how the assets have been traded, stored and exchanged. The problem some taxpayers find is that the exchange they have used to acquire or sell their Cryptoassets only keeps records of transactions for a short period, meaning the keeping of records by the taxpayer is key.
HMRC’s response to the popularity of Cryptoasset investment has been somewhat delayed due to the Covid pandemic, but with the publication of the HMRC Cryptoasset Manual at the end of March they signalled that they were moving towards a review of this area. Internally, HMRC have already allocated resources to working with international partners on ensuring that tax due on Cryptoasset transactions is being declared.
The authorities in the USA, Australia, Canada, The Netherlands and the UK are already sharing information cross border on the use of Cryptoassets in an effort to tackle tax crime, and in February this year HMRC began a consultation with industry and stakeholders on a regulatory approach to Cryptoasset investment.
Following HMRC interest in this area, Coinbase, one of the largest operators for Cryptoasset investment, announced that it had shared with HMRC details of UK resident taxpayers who had used its platform for transactions in excess of £5,000 in the 2019/20 tax year. We would expect the same information to be supplied for 2020/21.
So in essence the message is that HMRC may already know if you have investments in Cryptoassets!
What many investors may not appreciate is that you can create a taxable gain in Cryptoassets in any of the following situations:
- Exchanging Cryptoassets for cash (in any recognised currency, ie US$, £, Yen etc)
- Exchanging one type of Cryptoasset for another type (ie moving from Bitcoin to Ethereum)
- Using Cryptoassets to pay for goods or services
- Transferring Cryptoassets to a person who is not your spouse or civil partner
How we can help
We are working with a number of clients who have opted to make a voluntary disclosure to HMRC regarding their Cryptoasset investments, and would advise any individual who may have undeclared historic gains from investing in Cryptoassets to seek professional advice.
Professional costs for dealing with HMRC enquiries on undeclared income and gains can quickly mount up, and our Fee Protection Service may be worth considering. This subscription service that covers the professional fees we incur for dealing with an HMRC enquiry, subject to the terms of the policy. Investors in Cryptoassets may like to consider having this cover in place as an added level of protection.
For more information on our Fee Protection Insurance please contact Anthony Middleton 01905 777600
To view our other information about paying tax on crypto, and our latest blogs on crypto currency please click here
To view our other latest insights please click here
