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HMRC looking to increase focus on undeclared crypto assets

There is increasing evidence that HMRC is sharpening its focus on individuals who own crypto assets and are failing to declare them for tax purposes.
HMRC has now explicitly included cryptocurrency within their ‘statement of assets’ form – a tool used by HMRC to demand a complete account of all assets owned by a person under tax investigation.
By making clear during an investigation, that crypto assets are taxable, HMRC is preventing anyone from ‘pleading ignorance’. Those who lie on their declaration of assets form can be prosecuted.
HMRC’s increasing focus on crypto is an attempt to combat the untaxed crypto economy. HMRC suspects substantial amounts of money is being built up in cryptos, much of which is currently out of the sight of HMRC.
The move to demand more information about crypto holdings follows HMRC’s publication of its crypto assets manual in March, which outlines how crypto assets are taxed.
HMRC has made clear that Capital Gains tax applies to crypto holdings as it would to traditional holdings such as equities. The current Capital Gains tax free allowance is £12,300.
As HMRC concentrates further on crypto it may be the case that they seek out customer information from more crypto exchanges, including smaller ones, this will bring into the spotlight even more customers who could be on the receiving end of an investigation.
HMRC regularly requests information from financial institutions such as banks on transactions. Therefore, those who buy and exchange crypto should not be surprised if HMRC requests information from an exchange they are using.
Many profited, perhaps to an unexpected extent, from the rise in the value of crypto currencies over the last decade. It may be that individuals may be unaware of the tax that they are required to pay on this new wealth.
A lot of people who have been recently involved in investing and trading in cryptocurrencies are relatively new to investing. The spectacular returns that early investors made have attracted people into the market who have not invested before. These new investors may be more likely to make a mistake in their tax return, and subsequently may be subject to an investigation.
HMRC’s heighted focus on crypto assets comes at a time when it is under pressure to increase the extra tax revenue it takes in from investigations – as the state of public finances remains weak. As is usually the case, a fall in tax revenue will be swiftly followed by a rise in tax investigations.
Tax investigations can be very stressful and costly for those involved. PfP are specialists in this area and you can protect yourself against the cost of most tax investigations by subscribing to our Tax Investigation Service. To find out more contact