Pay tax on your crypto profits, HMRC reminds investors in letter
- Anyone who has received the letter from HM Revenue & Customs should not ignore it
Investors who have failed to declare or pay tax on cryptocurrency profits are being reminded to do so by HM Revenue & Customs (HMRC).
The Tax Authorities have written a letter to investors reminding them that they may have to pay tax on the profit they made after selling part of their crypto assets.
It says that if an assessment reveals that additional capital gains tax or income tax is payable on previously undisclosed crypto profits, interest on late payments and other penalties may be payable.
According to tax consultancy firm BDO, the letter is addressed to individuals who the Tax Authorities know have ‘sold’ crypto assets.
Paying Tax? Investors Suspected of or Already Failing to Pay Sufficient Tax on Cryptocurrency Profits Are Being ‘Encouraged’ to Do So by HMRC
The letter from HMRC begins with the sentence: ‘We are writing to you because our records show that you have sold crypto assets. However, you have not declared everything correctly. This means that you may have to pay tax.’
The sale or receipt of cryptocurrencies is generally treated the same as other common assets for tax purposes.
HMRC states in its letter: ‘If you sell crypto assets, you may have to report them to us and pay capital gains tax (CGT) on any profits you make.’
The letter continued: ‘Income tax and National Insurance contributions may be payable if you were involved in activities relating to crypto assets that generated income.
‘For example, income from lending, staking and mining crypto assets. This can also arise from an employment relationship that resulted in an income that was paid in the form of crypto assets.’
Tax consultancy BDO adds in its own statement: ‘Such transactions include situations in which people have exchanged one cryptocurrency for another or paid for a product or service with cryptocurrency.’
When do you have to pay taxes on crypto?
According to HMRC, the profit or loss on the purchase and sale of stock exchange coins falls within the scope of capital gains tax.
According to BDO, the guidance states that HMRC will only accept that buying and selling cryptocurrencies amounts to a trade for tax purposes in exceptional circumstances.
For those who are confident that they do not have to pay crypto-related tax, HMRC said: ‘If you are confident that you do not have to pay crypto-related tax, please contact us using the details set out later in this letter. To assist you, we ask that you include information showing why you do not have to pay tax on your crypto-asset activities when you contact us.’
Anyone who has received the letter from the Tax Authorities should not ignore it.
Paul Falvey, tax partner at BDO, said: “Many crypto asset owners may not be fully aware of their obligations and may never have filed a tax return before.
‘They might be shocked when this letter lands on their doorstep, but the worst thing they can do is ignore it.
To keep their tax position up to date, people may need to request reports from their financial advisers or online platforms.
‘In certain circumstances, those involved would be wise to seek expert advice as to which disclosure facility is most appropriate.
‘If there is additional tax due, HMRC can charge interest on late payment and impose tax-related penalties. These penalties can be up to 100 per cent of the tax due – or more if the holding company was based offshore.’
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