Crypto Tax Investigation
Holders of crypto assets must pay tax on any income received from their crypto asset holdings. Those who fail to declare their income or gains will be challenged by HMRC. If an Crypto tax investigation uncovers any allegations of wrongdoing, HMRC may choose to impose either civil or criminal sanctions.
If you are the subject of an HMRC investigation, please contact us at Altion Law. Our solicitors can represent you throughout proceedings, working on your behalf to secure a favourable outcome.
Paying Tax on Crypto Assets
Investors holding crypto assets must pay income tax and capital gains tax on income received from their crypto asset holdings. Tax is payable on any profit gained from the disposal of crypto currencies, as set out in the Crypto assets Manual published by HMRC. This includes where they are sold, exchanged or used to buys goods or services.
Contrary to popular belief, HMRC has extensive information powers. HMRC can request data from UK-based crypto currency exchanges. This confirms exactly who has invested in crypto assets – meaning HMRC is very aware of who is holding crypto investments and what gains have been made. Indicating anyone who could be open to a Crypto tax investigation.
Individuals who realise gains over the UK annual exemption must register for self-assessment. A self-assessment return must be correctly filed and tax owing paid by the deadline. The consequences of failing to report gains can be serious, often involving significant financial penalties. In extreme cases, HMRC may even choose to pursue criminal proceedings.
The evolving nature of crypto assets creates a number of complicating factors in terms of tax treatment.
Individuals should be aware that under the current rules, HMRC determines crypto situs based on the residency of the beneficial owner. This is particularly relevant for UK resident ‘non-doms’. So, if you hold crypto assets that are distinct from other underlying assets and you are a UK resident, the crypto situs is the UK.
Crypto assets are also subject to major market volatility. The price of assets can rise and fall drastically time and time again. Speaking in October 2021, Bank of England deputy governor Jon Cunliffe said: “The price of bitcoin has fallen by over 10 per cent in a single day on nearly 30 occasions in the past five years.”
That is why individuals must keep detailed records of:
- The type of crypto asset held and the number of units held
- Date of the transaction
- The type of transaction – e.g., purchased, sold, exchanged or used to buy goods and services
- The value of the transaction in GBP at the date of the transaction
- Relevant bank statements and paperwork
This provides an audit trail and evidence of losses/gains, should HMRC challenge you for holding crypto and not declaring associated income or gains.
HMRC Crypto Tax Investigations
HMRC is clamping down on those who fail to declare crypto assets. It has even started sending ‘nudge’ letter to holders of crypto assets to remind them to pay the correct tax. Any indications of wrongdoing will result in an HMRC investigation. Depending on the outcome of the investigation, HMRC can impose civil or criminal sanctions.
HMRC can also seize assets as part of their investigations into civil or criminal wrongdoing. They have wide-ranging powers of search and seizure, extending to intangible assets such as crypto currency.
Find out more about HMRC Seizure and Freezing of Crypto Assets.
Contact Our Solicitors For Help
If you are the focus of an HMRC investigation and crypto assets are a factor, please contact us at Altion Law. We specialise in all aspects of HMRC investigations. We are well-versed in the complexities regarding crypto assets and tax.