As published on ft.com, Wednesday 20 October, 2021.
HM Revenue & Customs plans to send crypto investors nudge letters warning them to check they have the paid the right tax.
News of the letters, which have yet to be issued, was released by CryptoUK, a trade association, on Wednesday, accountants reported.
HMRC told CryptoUK it was taking an “educational approach” in issuing the letters. It added its aim was to highlight areas “people may not be aware of when considering if they have to pay any tax”.
“If you receive a nudge letter it does not necessarily mean you have made an error on your tax return, but you need to ensure that you respond correctly to HMRC,” the correspondence said.
The letters will be used to encourage cryptocurrency investors to review whether they have paid the correct amount of capital gains tax (CGT) and in some cases, income tax, on their crypto holdings.
“In our view, it would be fair to say that most underpayments will not have come from wilful evasion, but rather ignorance,” said Zoe Wyatt, partner and crypto asset specialist at Andersen UK, an accountancy firm.
She warned people who receive the letter not to ignore it, as doing so would likely be seen as a deliberate act of non-compliance by the authority and lead to higher penalties.
But other tax experts said the development was a sign of HMRC seeking to clamp down on possible evasion or avoidance by some crypto investors.
“It is likely that HMRC believes large amounts of CGT and income tax generated from cryptocurrency investments have been undeclared for tax purposes. In some cases, this could constitute criminal tax evasion,” said Graham Boar at UHY Hacker Young, an accountancy firm.
“HMRC suspects that there is an increasing amount of hidden wealth thanks to the rise of cryptocurrencies. Many retail investors in cryptocurrencies are under the misunderstanding that HMRC is unable to find out about their crypto investments and any gains they may have made.”
HMRC has used its information-gathering powers to demand lists of crypto investors from exchanges over the past couple of years.
Tax authorities are also including data on crypto investors in the information they collect across borders. A freedom of information request by Gherson Solicitors, a law firm, this year confirmed HMRC had used its powers to gather information about crypto investors in and outside the UK for the tax years 2017/18 to 2019/20 inclusive. Details included the names and addresses of investors and the value of crypto assets held.
HMRC said it wanted to help people get their tax affairs right.
“We regularly undertake activity to educate customers who might need help. Our letter asks cryptoasset holders to review their transactions to ensure that they are declared correctly,” it added.
CryptoUK was approached for comment but did not immediately respond.