Spring Budget 2023: HMRC scrutiny on Crypto assets

Whilst 2023 delivers strong crypto returns, HMRC increase their checks to ensure you are getting your tax on crypto assets right.

Crypto markets have bounced back in 2023, with particular enthusiasm for AI crypto tokens and projects. Irrespective of how your crypto has performed, it is crucial to make sure you are reporting your crypto correctly, to get your tax right or to take advantage of valuable tax relief on any losses.

How are HMRC increasing their checks?

HMRC announced there will be greater scrutiny on the reporting of all crypto transactions, including for cryptocurrencies and NFTs. All crypto sales will need to be separately identified on UK tax returns from next year (from April 2024), meaning you have to provide HMRC with more information when you submit your tax return.

This will give HMRC the opportunity to check your annual tax reporting against the data they receive directly, for example from crypto exchanges and other trading platforms.

What data does HMRC receive direct about crypto?

For the last couple of years HMRC have obtained the contact details of those trading in Crypto assets on the main crypto exchanges (like Coinbase, Binance or Kraken). Under UK regulations, to have UK customers, these exchanges are expected to disclose user data to HMRC.

What happens if you do not report to HMRC?

Where data has been shared with HMRC and you do not report your crypto sales, HMRC are likely to contact you with a ‘nudge letter’ to prompt you to disclose. If there is tax to pay, the penalties will be much larger (up to 200%) if HMRC get in touch with you first, so it is always better to bring any historic reporting to their attention first.

But what if I have always kept the funds invested in crypto?

Where you have always remained invested in crypto and not exchanged your crypto for ‘fiat’ currency or withdrawn the funds, UK tax charges and tax reporting can still arise. The transfer of one crypto asset or currency to another, is a disposal under UK tax rules. Therefore, a careful check of your crypto transactions is important to make sure your tax reporting is up to date.

Or where I am not domiciled in the UK?

The HMRC view is that crypto is situated where the holder is resident. This means that the remittance basis of taxation will generally not protect crypto gains or income. If you were relying on your domicile status to protect crypto gains, you will want to check whether you have missed any tax reporting.

How can Mercer & Hole help?

We can offer support and advice if you currently own or have previously disposed of crypto assets. If this may impact you, or you have any questions or concerns, please do not hesitate to contact Henry Lowe.