Crypto Users: Navigating Tax Obligations in the Crypto Space

In a stern move, HMRC has issued its second warning to cryptocurrency users, emphasizing the imperative need to declare and settle taxes on digital assets. This alert stems from mounting concerns that a significant number of crypto owners may not be fully aware of their tax responsibilities.

The latest directive from HMRC mandates crypto users to submit a Self Assessment tax return before the January 31 deadline and settle any taxes owed on gains.

Understanding the tax treatment of crypto assets can be intricate, but, in essence, HMRC considers the profit or loss from buying and selling exchange tokens as subject to Capital Gains Tax (CGT).

HMRC will only categorize the buying and selling of crypto as a trade for tax purposes under exceptional circumstances.

Implications for Users

For individuals, this underscores the importance of reporting and fulfilling tax obligations if they have sold crypto for a profit during the 22-23 tax year. Decisions need to be made promptly, considering whether a tax return is required before January 31, 2024, and declaring any crypto losses to offset against future tax years.

Dawn Register, Head of Tax Dispute Resolution at BDO, highlights HMRC’s increased interest in individuals who have profited from crypto assets but failed to declare them. Late payment interest and tax-geared penalties, potentially up to 100% of the tax, could be imposed if undisclosed gains are discovered.

Reporting Gains and Losses

Individuals who have sold crypto for a profit during the tax year may need to file a Self Assessment tax return, with a reporting threshold for crypto trades set at £49,200. Accurate reporting of gains and losses is essential to avoid penalties and ensure compliance with tax regulations.

To meet tax obligations for crypto gains, filing a Self Assessment tax return is mandatory, with the deadline set for January 31, 2024.

Different Crypto Activities

Tax obligations for crypto users vary based on their activities. Common scenarios where tax may apply include receiving cryptoassets from employment, actively trading cryptocurrencies as a business, exchanging or selling cryptoassets, using cryptoassets for purchases, and gifting or donating cryptoassets.

HMRC’s Disclosure Facility for Undeclared Crypto Gains

In a bid to encourage individuals to declare previously undisclosed gains, HMRC has established a dedicated disclosure facility. This offers a chance for individuals to rectify their tax position, potentially reducing penalties associated with undeclared gains.

Adapting to Change

As the crypto industry evolves, tax regulations may change. Staying informed about updates or amendments to tax laws relating to cryptocurrencies is crucial. By remaining proactive and meeting tax obligations, individuals can confidently navigate the crypto tax landscape.