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HMRC has started to issue nudge letters to crypto owners who are suspected of failing to pay the correct tax on their crypto gains. The ‘One to Many’ letter warns recipients that if it is found that there is additional capital gains tax or income tax to pay on previously undisclosed crypto gains, there may also be interest due on any late payments as well as penalties to pay.
According to BDO, HMRC sees the profit or loss made on buying and selling of exchange tokens as within the charge to Capital Gains Tax (CGT). Its guidance says that only in “exceptional circumstances” will it accept that buying and selling crypto amounts to a trade for tax purposes.
This means that if individuals have sold crypto for a profit during the tax year, they may have reporting and tax obligations and will need to consider whether they need to file a tax return.
BDO warned that these letters are targeting those who HMRC knows have disposed of crypto assets. Such disposals will include circumstances in which people have exchanged one cryptocurrency for another or paid for a product or service using cryptocurrency.
Several years of unpaid tax may be payable and, depending on the reason why it is undisclosed so far, HMRC can have up to 20 years to assess additional tax.
Paul Falvey, a tax partner at BDO said: “Many owners of crypto assets may not be fully aware of their obligations and may not have filed a tax return before. They could well get a shock when this letter hits the doormat – but the worst thing they could do is to ignore it.
“To bring their tax position up to date, individuals may need to source reports from their financial advisers or online platforms. In certain circumstances, those affected would do well to seek specialist advice on the most appropriate disclosure facility to use.”
He added: “If additional tax is due then HMRC could charge late payment interest and impose tax-geared penalties. These penalties can be up to 100% of the tax due – or more if the holding was based offshore.”
