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Crypto asset owners have been urged by the UK tax authority to disclose any unreported gains, in a move that experts warned could indicate a gathering crackdown over unpaid tax.
HM Revenue & Customs this week launched a voluntary disclosure mechanism encouraging the public to tell it about unpaid tax on income or gains from crypto assets, including exchange tokens, non-fungible tokens and utility tokens.
While taxpayers have previously been able to use HMRC’s disclosure tools to declare unpaid tax, this is the first time it has launched a process targeting crypto asset owners.
The measure follows an announcement last month that the UK will be implementing an OECD-led programme that will require crypto platforms to start sharing customer information with tax authorities, from 2027.
Dawn Register, head of tax dispute resolution at accountancy firm BDO, said: “The launch of this new disclosure facility highlights HMRC’s concern about non-compliance among crypto asset owners and underlines its determination to recover unpaid tax.”
She added: “Much of this non-compliance may stem from people simply not knowing or understanding their tax obligations when it comes to crypto,” saying the facility could be “a very useful opportunity to rectify past mistakes”.
The government has previously referred to estimates that tax non-compliance on the number of cryptoasset holdings could “range from as high as 55 per cent to 95 per cent”.
Daniel Howitt, chief executive and co-founder of Recap, a crypto tax software provider, said HMRC’s new disclosure facility gave people the opportunity to get on top of their crypto taxation before HMRC gained access to better data.
“Over the past 10 years, for most people with crypto it’s been almost voluntary to pay tax. There’s been no repercussions but things are changing quite dramatically as HMRCs gain access to better analytics,” he said.
“If you haven’t filed in five years you could refile and have very little penalties and fines. But if the shoe is on the other foot and they come after you, that’s when you will get the full force of HMRC’s powers.”
Advisers suggested people who may have unreported gains to declare should consider seeking professional support before using the voluntary disclosure facility, as the tax treatment of cryptoassets is complex and several years of unpaid tax may be payable. If additional tax is due then HMRC will also charge late payment interest on that tax.
Richard Jones, senior technical manager of tax policy at ICAEW, a professional body, said that he expected the taxation of crypto assets to be an “increasing area of focus for HMRC”. The asset class had evolved quickly, he said, posing challenges for tax authorities to catch up.
Many owners of crypto could be tripped up by the complicated rules as to when they had triggered a taxable gain. For example, exchanging tokens for a different type of crypto asset, using tokens to pay for goods or services or giving away tokens to another person or charity could all trigger a tax charge, he said.
The reduction in the annual exemption for capital gains tax to £3,000 from April 2024 is likely to mean more individuals will breach the threshold, he warned.