UK: Cryptocurrency traders who fail to declare profits on tax returns facing HMRC crackdown.

As published on inews.co.uk, Thursday 20 January, 2022.

Those who deal in cryptocurrencies such as Bitcoin and believe that their transactions are not discoverable by tax officials are in for a shock according to a leading tax and advisory firm.

Fiona Fernie, a tax dispute resolution partner at the Blick Rothenberg is warning crypto traders who believe they do not have to show profits on their self-assessment tax returns will be caught by Her Majesty’s Revenue and Customs (HMRC) due to new innovations at the tax collector.

Ms Fernie said: “Anybody who believes that they can trade in crypto assets without leaving a discoverable footprint is completely mistaken. HMRC is better prepared to face the challenges posed by crypto-asset transactions than many people believe.”

Crypto assets continue to grow in popularity and the total value of the global market is now believed to be around $1.9trn, having fallen from an all-time high of around $3trn late last year.

Ms Fernie added that there is considerable scope for tax liabilities to be underdeclared, particularly given that there remains considerable confusion about the correct tax treatment, despite HMRC guidance on the issue.

Ms Fernie said: “Although the identities of the owners of such assets are not usually recorded in an easily accessible way, HMRC have an armoury of procedures which allows them to find those that own crypto assets to pursue enquiries where they believe that tax may have been underdeclared”.

“HMRC use their powers to gather information from crypto asset exchanges and have used that data to write to those taxpayers they believe own or have owned crypto assets to advise them of the tax consequences of common transactions. They have also developed specific in-house training for staff, and they use blockchain forensic tools.”

These cryptocurrency developments sit alongside the considerable enforcement powers that HMRC use traditionally, including enquiring into tax returns, and working with other tax jurisdictions to share data.

“Anyone benefiting from cryptocurrencies needs to declare what they owe,” added Ms Fernie.

As part of its plan to clamp down on the cryptocurrency markets the Government said it would crack down on misleading adverts for cryptocurrencies on Tuesday, amid concern that some investors have a limited understanding of what they are buying.

Adverts promoting the currencies will have to adhere to the same standards as other financial products, the Treasury announced.

Chancellor of the Exchequer, Rishi Sunak said: “Cryptoassets can provide exciting new opportunities, offering people new ways to transact and invest, but it’s important that consumers are not being sold products with misleading claims.

“We are ensuring consumers are protected, while also supporting innovation of the cryptoasset market.”

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