HMRC recently launched a new campaign targeted at crypto investors as part of a crackdown on tax evasion. They have introduced a new disclosure and payment service for taxpayers to voluntarily disclose and pay any unpaid taxes associated with cryptoassets.
Cryptoassets (also known as tokens or cryptocurrencies) include exchange tokens (for example, bitcoin), non-fungible tokens (NFTs) and utility tokens.
HMRC view the profits or losses incurred from buying and selling such cryptoassets as liable for capital gains tax. Only in exceptional circumstances would they recognise crypto trading as a taxable ‘business’ trade.
Many who own cryptoassets may not be aware of the tax obligations on these digital assets. This voluntary disclosure service provides an opportunity to put things right with potentially lower penalties than if HMRC discover the underpayment for themselves.
Such a discovery is likely to become easier for HMRC. Tax avoidance from using cryptoassets is a subject of international concern, and there are moves to require crypto platforms to share taxpayer information with tax authorities.
What is taxable?
HMRC believes most individuals holding (or who have previously held) cryptoassets will owe some amount of Capital Gains Tax (CGT). HMRC have found that many individuals are unaware of what should and shouldn’t be declared when it comes to cryptoassets. The following activities could create a disposal for CGT purposes:
- selling cryptoassets in exchange for regular, “fiat” currency such as UK sterling, Euros or Dollars
- exchanging cryptoassets for others (e.g. trading Bitcoin for Ethereum, or selling an NFT)
- gifting cryptoassets to anyone other than a spouse or civil partner
- using cryptoassets to directly purchase goods or services.
Some transactions will be seen as taxable under your Personal Income Tax Return, the value of these will always look at the market value at the time of acquisition. All assets earned in this way will also still be taxed for CGT upon sale. These include the following:
- mining for Bitcoin or other cryptocurrencies
- rewards from staking
- profit from defi loans
- being paid for work in cryptoassets (you may also need to make a NI contribution)
- airdrops that required “work” from the recipient
If you are unsure of what you may or may not need to declare or anyone you know needs any advice or help in this area, please don’t hesitate to contact us!
January 8th, 2024
