HMRC continue to target Crypto tax compliance
On 10 November the UK agreed an historic joint statement with 48 countries to help combat the use of crypto assets to evade and avoid billions in tax
The Crypto-Asset Reporting Framework will be the Organisation for Economic Co-operation and Development’s (OECD) latest flagship tax transparency standard. It will mean that crypto platforms will need to start sharing taxpayer information with tax authorities, which they currently do not, ensuring these authorities can exchange information internationally to enforce tax compliance. The Crypto-Asset Reporting Framework is expected to take effect in time for exchanges between countries to start in 2027.
While 2027 may seem a long way off, HM Revenue & Customs (HMRC) already receives a great deal of data as a result of their own information gathering abilities in the UK. Research carried out by HMRC in 2022 indicated that crypto assets were held by as many as 1 in 10 UK adults, yet 58% were unaware of the tax consequences of doing so.
On 29 November, HMRC also introduced a specific disclosure facility for those owning crypto assets. This provides a specific way of making a voluntary disclosure of unpaid tax derived from crypto assets. The incentive to make such a disclosure is that it will reduce penalties imposed by HMRC if they discover any errors and, in the more extreme cases, remove the threat of criminal investigation.
The period which such a disclosure covers will depend upon whether the unpaid tax came about as a result of an error despite taking reasonable care (up to four years), whether the error was careless (up to six years) or deliberate (up to 20 years). A settlement with HMRC will also include interest for late paid tax.
In most cases any liability will be to Capital Gains Tax (CGT) and this may arise when:
- Tokens are sold
- Tokens are exchanged for another crypto asset
- Tokens are used to pay for goods and services
- Tokens are gifted to another person (unless spouse or civil partner), or
- Tokens are gifted to charity
This latest disclosure facility continues to show HMRC’s belief that tax compliance around crypto assets still has a long way to go. A voluntary disclosure will receive better terms of settlement than if HMRC commence an investigation, but anyone disclosing needs to consider very carefully the behaviour involved and HMRC’s possible reactions before doing so.
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