Nikolas Sargeant
The UK's HM Revenue & Customs (HMRC) is launching a campaign to ensure cryptocurrency investors properly disclose and pay taxes on their digital asset gains. The tax authority has begun dispatching "nudge letters" to investors who may have overlooked reporting or paying taxes on profits from crypto transactions.
This initial wave of letters is just the beginning, with more expected to be sent out in the coming month. HMRC has clarified that income derived from crypto-related activities such as lending, staking, and mining is subject to taxation. Moreover, any crypto earnings received as part of employment are also taxable. Investors who fail to declare past crypto gains may face penalties, including interest on late tax payments.
Crypto Gains Fall Under Capital Gains Tax
Tax consultancy BDO reports that HMRC typically views profits or losses from cryptocurrency transactions as subject to Capital Gains Tax (CGT). The firm notes that HMRC seldom recognizes crypto trading as a trade for tax purposes, indicating that CGT is the standard applicable tax.
Individuals who have profited from selling cryptocurrency during the tax year may owe taxes and should be prepared to report their transactions and potentially file a tax return.
Paul Falvey, a tax partner at BDO, cautioned: "Many crypto asset owners may not fully understand their tax obligations and might not have filed a return before. These letters could come as a shock, but ignoring them would be the worst course of action."
UK Regulators Tighten Crypto Oversight
HMRC's current initiative follows a crypto tax disclosure campaign launched last year, which marked the first time the tax authority offered a dedicated process for individuals to disclose and rectify unpaid taxes on digital assets, including exchange tokens, NFTs, and utility tokens.
The UK maintains some of the most stringent regulations for crypto companies, particularly regarding advertising and registration. Recently, the Financial Conduct Authority (FCA) issued new promotional guidelines for crypto firms following an assessment of their compliance with financial promotion regulations. The regulator outlined both effective and inadequate practices observed across various firms, incorporating these insights into a new guide aimed at helping the industry meet compliance standards.
