Over the last few years a new form of currency has taken the modern world by storm. You may have heard of Cryptocurrency, and in particular terms such as ‘Bitcoin’. Cryptocurrency is a digital or virtual currency that is secured by cryptography which makes it nearly impossible to counterfeit or copy. This currency is openly traded on the Crypto market, similarly to how other conventional currencies are traded in the Forex market.

Trading cryptocurrency has become very common, and many investors may be unaware of their tax position and duties and as such, may have accrued tax liabilities over the years which have gone unreported. HMRC possess many tools and are utilising these to obtain information from exchanges and brokers to identify taxpayers who have not reported and paid their liabilities.

With Crypto investments becoming more popular, HMRC will be less accepting of the idea that taxpayers are unaware of their obligations and have acted carelessly in not reporting their liabilities and subsequently may come down harder on those deliberately failing to report their liabilities.

HMRC possess various statutory tools to request information from exchanges and wallet providers not just domestically but globally. Crypto exchanges and wallet providers are enforcing due diligence requirements, such as customers having to disclose their identities and reporting suspicious activities. This means that relevant information will be subject to a standard information request by HMRC.

It would be unreasonable to assume that HMRC will not have the access to your crypto-data eventually, and would strongly recommend that individuals review their position and make a voluntary disclosure to HMRC where there is an unreported liability. 

Typically, individuals involved in the following activity are likely to have a reporting requirement and / or a tax liability:

  • Crypto trading
  • Participating in mining, staking and liquidity pooling
  • Trading in CFDs, options, and futures
  • Creating and or trading in Non-Fungible Tokens (“NFTs”)
  • Peer to peer lending
  • Providing services in return for cryptoassets

How to make a disclosure? 

HMRC have an online disclosure facility designed to enable taxpayers to make a voluntary disclosures. The process can be long and tedious. The taxpayer should notify HMRC that they intend to make a disclosure, enabling the taxpayer 90 days to follow up with an actual disclosure. HMRC’s disclosure forms provide not much area to disclose a narrative or explanation, which is largely unhelpful if you are in a position where there are many transactions which need explaining. Therefore, using the online disclosure facility can often result in enquiries being made by HMRC before the disclosure is accepted. This process can take months, and in some cases can exceed 12 months. The taxpayer will be required to provide voluntary penalty and interest. Penalties are calculated in line with the relevant regimes and will typically be in the region of 15% – 30%. This amount could be reduced to nil or increased to 100% depending on the circumstances and how helpful the taxpayer is. The interest is based on the rates at any point in time. The taxpayer is advised to be reasonable in their approach, otherwise they may risk HMRC rejecting the disclosure entirely which can result in a formal inquiry which can be more stressful and risks significantly higher penalties.

How can we help?

At Signature Tax , our team has specialists who possess substantial experience in preparing disclosures and dealing with enquiries from HMRC. We have extensive knowledge on HMRC’s approach and boast a successful track record in preparing robust disclosures and having such disclosures accepted. We can ensure robust disclosures are made on behalf of our clients with the aim of having a seamless and quick result to ensure the best outcome is reached.

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