HMRC has intensified its crackdown on cryptocurrency traders and holders, sending out 81,000 warning letters in the past year to those suspected of underpaying tax, according to a Freedom of Information request obtained by accountancy firm UHY Hacker Young. This represents a 25% increase from the 65,000 letters sent in the previous year, as reported by This is Money.
Ramped-up tactics target suspected underpayers
The tax authority, under the Labour Party government, has ramped up its tactics against traders suspected of underpaying tax. The letters, described as a "barrage" by This is Money, are part of a broader effort to address perceived tax evasion in the cryptocurrency sector.
Neela Chauhan, partner at UHY Hacker Young, commented: "There is the expectation among tax authorities that cryptocurrency investment is rife with tax evasion. A lot of the traders are young, have had little previous exposure to HMRC and often work under the assumption that HMRC has limited visibility over their activities."
Common misconceptions among crypto investors
Chauhan highlighted key misunderstandings among crypto investors: "Crypto investors often forget that you may still have made a taxable gain even when you are swapping one cryptocurrency for another and might not be aware that the income you can earn by lending cryptocurrencies is taxable."
She added: "Once HMRC has this data then tax investigations into cryptocurrency investors will be like shooting fish in a barrel."
Capital Gains Tax rules apply to crypto disposals
Under HMRC rules, individuals may need to pay Capital Gains Tax if they make a gain when they 'dispose' of cryptoasset tokens (also known as cryptocurrency) by selling them or exchanging them for a different type of cryptoasset. Tax may also be due when using them to pay for goods or services, or giving them to another person, unless it's a gift to a spouse, civil partner, or charity.
Taxpayers must calculate their total gains from disposing of certain assets, including cryptoassets. If the total gain for the tax year (6 April to 5 April) exceeds the Capital Gains Tax tax-free allowance, then the gain must be reported to HMRC and Capital Gains Tax paid.
