In recent months, whenever I’m chatting to a client who has investments, I always ask do you hold any crypto-assets. It did not surprise me to find that most of the clients who’ve dabbled in Bitcoin, Ethereum, XRP et al, seem to think that any transactions in this type of investment were invisible to HMRC.
Unfortunately for them, I had to break the news that HMRC are now targeting this relatively new form of asset and that a new reporting framework is on the way, with disposals of crypto-assets, now needed to be added to your tax return checklist.5
Crypto Asset Tax: It’s outside the scope of tax, isn’t it?
Chatting to my clients and anecdotally with other accountants, made me realise just how many people have dabbled with crypto and how few of them realise they may have something to declare for tax.
In 2022, HMRC published research that they’d undertaken into crypto trading which found that 10% of UK adults currently hold or have held a crypto-asset. They also found that the majority of those who had made a disposal said they had made a profit, but that the vast majority of them were completely unaware that they might be liable to pay tax when they traded their favourite cryptocurrency.
Until relatively recently, there was very little published guidance available, but that has now changed with HMRC’s crypto-assets manual now having been published. But the calculations can only be done if the taxpayer is actually aware that they need to disclose these types of transactions.
Crypto Asset Tax: Wake- up call
The tax office’s research made it clear that awareness, or rather the lack of it, was a wake-up call to them; and it is the key driver of the taxman’s new strategy of making taxpayers mindful of the need to disclose these types of transactions.
HMRC now sees this as an area worthy of urgent attention and last year, it began sending nudge letters to individuals it suspected may have failed to declare taxable crypto-asset transactions. It is also changing the tax return (SA108) to make it clearer to taxpayers that a declaration is needed.
Crypto Asset Tax: Tax return changes
Until now, crypto-assets should have been disclosed in the “other property, assets and gains” section of the SA108, but a taxpayer who completes their own return would potentially only realise that if they read the SA108 notes. These notes included a link to the gov.uk guidance “check if you need to pay tax when you sell crypto-assets”.
HMRC for once, have accepted what actually happens in the real world and that few taxpayers were ever likely to study their voluminous guidance notes. So, fast forward to last year’s Budget and hidden away in the detailed notes to this fiscal event was a paragraph stating that changes would be introduced to the 2024/25 self-assessment tax return (SA108), requiring crypto-assets to be identified separately.
Thus, in future they will no longer be hidden away in some obscure notes, but instead a separate box will now be included on the SA108 itself. So, going forward, any taxpayers who unwisely believe that ‘’if there isn’t a box for it, it doesn’t need to be declared”, will get a bit of a shock.
Crypto Asset Tax: Common Reporting Standard (CRS)
The UK was one of the first signatories to the Common Reporting Standard (CRS), which enables automatic exchange of information between over 100 tax authorities. Participating tax authorities collect information relating to non-resident taxpayers from financial institutions in their jurisdiction and share it with the jurisdiction in which a taxpayer is resident.
The scope of CRS reporting is being expanded to include certain digital financial products and a new register is being constructed called CARF (Crypto-asset reporting framework). This will give tax authorities, including HMRC, access to information specifically relating to crypto transactions, with the new rules coming into force in 2026 with the first information exchanges in 2027.
Tax Accountant’s view
It’s a given, that most taxpayers will not have a scooby-doo that crypto-asset transactions have tax implications, so, with HMRC’s increasing interest in this area and with even greater powers, raising awareness is critical.
So, if you haven’t had a nudge letter from HMRC, it is likely that you’ll be given an unofficial amnesty on past years transactions, but in future any failure to declare your cryto holdings can, and probably will, land you not only with a penalty, but potentially a tax office enquiry into past years’ tax returns.
You have been warned!
