Crypto Assets - tax nudge letters expected soon

There has been a huge rise in UK taxpayers buying and selling and using crypto through 2020 and into early 2021, partly fuelled by the adoption/use of crypto by household names and partly by the substantial increase in value of Bitcoin in late 2020 to early 2021. Despite the high risks, crypto assets are becoming mainstream.

While HMRC has done a lot of good work around de-mystifying crypto over the last couple of years, in the main, crypto exchanges do not produce the type of easy to follow year-end tax packs for investors as with traditional share and investment exchanges. This makes working out what, if anything, to report on your tax return very difficult for many taxpayers and mistakes and omissions can happen.

Based on recent discussions, we understand that HMRC is now planning to issue ‘nudge’ letters on crypto-assets to taxpayers in November 2021. HMRC has been gathering information from UK based crypto exchanges and feels it is right to issue these letters now, in advance of the submission of taxpayers 2020/21 UK self-assessment tax returns (which have a filing deadline of 31 January 2022).

What to do if you receive a Crypto nudge letter?

If you have used, bought or sold crypto assets between 6 April 2020 and 5 April 2021, you should check whether you have a reporting obligation.

Most disposals of crypto assets are subject to capital gains tax (CGT), so if your gains for the year are more than your available CGT annual allowance (£12,300 for 2020/21), you may need to report the disposals via your UK self-assessment tax return. Alternatively, if you are in fact carrying on a business through crypto transactions (ie frequent trading in crypto assets), that may fall within the income tax regime and you may have income tax to pay.

If your personal tax position is complex, for example if you are a UK resident non-UK domiciled individual claiming the remittance basis, or your crypto transactions involve buying and selling Non-Fungible Tokens (NFT) or DeFi (Decentralised Finance), you may require specialist crypto tax advice.