HMRC issues warning to cryptocurrency and NFT investors

Do you have untaxed income and capital gains?

From HMRC’s perspective, if you’ve been UK resident while investing in cryptoassets, you’re likely to have untaxed income and capital gains.

Income can be received in the form of cryptoassets, for example from staking or even as remuneration for employment duties amongst other things. Capital gains and losses arise on the disposal of cryptoassets, which importantly includes token for token exchanges. This extends to cryptocurrency and NFTs. Click here for more information on the taxation of cryptoassets.

Non-domiciled individuals

The position is less clear for non-domiciled individuals who claim the remittance basis of taxation and their position should be considered carefully. 

If you’re a non-domiciled individual, you may benefit from the remittance basis of taxation, which limits your UK tax liability to tax on UK income and capital gains and remittances of any untaxed foreign income and gains. Therefore, the situs of the cryptoasset is significant when determining what is subject to tax when claiming the remittance basis. HMRC currently considers a taxpayer’s residence as determining the situs of their cryptoassets but this view has been contested by taxpayers.

If you’re a remittance basis user who has not paid UK tax on your cryptoasset income and gains, on the basis it’s foreign source, you must ensure appropriate advice is sought in respect of your position.. Click here for more information.

Why should you disclose under the new facility?

If you believe you may have untaxed income or gains arising in relation to your cryptoassets, or if you’ve received a nudge letter from HMRC, you should contact a professional advisor to review your affairs and consider whether a disclosure is required.  

If necessary, taking the opportunity to make a full disclosure under the new facility will provide you with the assurance that your affairs can be efficiently brought up to date, giving you control of the process rather than facing a potentially lengthy HMRC investigation, and helping to minimise your exposure to financial penalties. 

Click here for more information on disclosures for crypto.

Penalties and how to reduce them

Where a disclosure of unpaid tax is made to HMRC, they will consider charging financial penalties. These can be up to 100% of the unpaid tax, but ultimately will depend on the behaviour of the taxpayer, the reason why tax has not been paid and whether the disclosure has been prompted by HMRC. The underlying behaviour will also determine the number of years which are required to be disclosed.

It will need to be established whether tax was not paid: 

• despite taking reasonable care;
• because the taxpayer did not take care; or
• because it was something the taxpayer did deliberately.

To minimise exposure to tax, penalties and the years which HMRC can assess, it’s important to include representations in relation to the underlying behaviour as part of the disclosure. Those who knowingly failed to disclose crypto income and gains must take specialist advice, as this facility will not offer protection against potential criminal prosecution from HMRC.

How we can help 

If you’re unsure of whether you’re required to report your crypto activity or that you may have untaxed income or gains in recent years, or if you’ve received a nudge letter from HMRC regarding crypto assets, we can help. Our experts will conduct a full review of your tax affairs and identify any issues and the period which needs to be disclosed, to provide you with an initial view as to the extent of your exposure. We’ll also guide you through the disclosure process and help to minimise your exposure to tax, penalties and interest.