Have you recently received a letter from HMRC about cryptocurrency or do you transact in cryptocurrency and you are unsure about the tax treatment or your obligation to declare such transactions on your tax return?
Read this article for the most frequently asked questions about cryptocurrency and what should you do if you receive a letter from HMRC about Cryptocurrency.
HMRC has the ability to obtain a full list of cryptocurrency holders by sending data requests to UK-based cryptocurrency exchanges and other financial organisations & it has exercised rights under International Treaties to request information from other tax administrations to obtain information held by crypto-asset exchanges and data holders outside the UK.
HMRC has confirmed that it will issue ‘nudge letters’ to known UK resident cryptocurrency investors who it believes may have underpaid tax on their cryptocurrency transactions.
The purpose of this letter from HMRC about cryptocurrency is to encourage investors to ensure they have paid the correct amount of income tax and capital gains tax (CGT) on any income they have received from their crypto asset holdings.
HMRC does not consider crypto assets to be money or currency but has stated that tax is payable on any profit received from the disposal of cryptocurrencies, including when they are sold, exchanged for another crypto asset, or when they are used to buy goods or services.
What to do if you receive a letter from HMRC about Cryptocurrency?
If you receive a letter from HMRC about Cryptocurrency then it does not necessarily mean that you have made an error on your tax return or failed to disclose something on your tax return.
However, you should not ignore the letter and professional advice should be sought before returning any information to HMRC as this could result in an investigation into your tax affairs and, in some cases, financial penalties.
We have assisted many clients who have received nudge letters from HMRC regarding their worldwide income & assisted them with the preparation & submission of the disclosure using the Worldwide disclosure facility to settle undisclosed offshore income, gains or assets and since the beginning of this year, we have been assisting clients in analysing their tax situation for their Cryptoassets and corresponding transactions to ascertain whether they need to be declared on the client’s self-assessment tax return to ensure they are fully compliant with the current tax legislation.
Many individual investors may be unaware that gains made as a result of disposals of cryptocurrency are usually subject to capital gains tax, or that the tax implications in some cases may be more complex than that. Investors should seek tax advice in relation to their cryptocurrency holdings and ensure that any relevant tax is paid, whether or not they receive a letter from HMRC asking them to check their tax affairs.
How Are Cryptocurrencies Taxed in the UK?
Tax on Cryptoassets is a frequently asked question these days due to the massive surge in popularity of Βitcoin.
In the vast majority of cases, individuals hold Cryptoassets as a personal investment, usually for capital appreciation or to make particular purchases. They will be liable to pay Capital Gains Tax when they dispose of their Cryptoassets.
Cryptoassets will be property for the purposes of Inheritance Tax. The location (also referred to as situs) of assets may need to be determined for non-UK domiciled taxpayers. Guidance on HMRC’s position is at CRYPTO22550.
HMRC does not consider Cryptoassets to be currency or money, so they cannot be used to pay a tax relievable pension contribution to an RPS. For more information on RPS contributions see PTM041000.
Companies are subject to Corporation Tax on their profits and gains. Corporation Tax also applies to companies that are members of a partnership or a limited liability partnership in respect of their share of the partnership profits and gains.
When calculating their Corporation Tax, companies must take into account all of the exchange token transactions they have carried out (as they would with any other type of asset).
It is not yet clear whether the letter from HMRC about Cryptocurrency will be targeted at retail investors only or would companies holding cryptocurrency get a nudge letter from HMRC about Cryptocurrency too.
We discuss further tax implications for Cryptoassets held by businesses in a separate article here.
Irrespective of whether or not you receive a letter from HMRC about Cryptocurrency, you should come forward and declare their cryptocurrency income as those who are later found to have misreported their crypto holdings could be at risk of prosecution.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you have any queries on the taxation of Cryptoassets, if you have received a letter from HMRC about cryptocurrency or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.Tags: Crypto Assets