Crypto asset holders urged to use the HMRC disclosure scheme

In November 2023, HMRC launched a new voluntary disclosure route to allow individuals with undeclared capital gains tax (CGT) or income tax relating to crypto assets to come forward and correct their affairs.

What to declare

HMRC is expecting that most individuals holding crypto assets will be within the scope of CGT, with their guidance stating, “in the vast majority of cases, individuals hold crypto assets as a personal investment, usually for capital appreciation or to make particular purchases”. While it is possible to be “trading” in crypto assets, HMRC considers there is a high bar to clear with individuals buying, selling and exchanging tokens with sufficient frequency only in “exceptional circumstances”.

HMRC have highlighted the following activities that could create a disposal for CGT purposes:

• selling crypto assets in exchange for regular, “fiat” currency such as UK sterling or dollars
• exchanging crypto assets for other crypto assets
• gifting crypto assets to anyone other than a spouse or civil partner
• using crypto assets to buy goods or services.

Is this the right disclosure route? 

The crypto asset disclosure service is for individuals with historical income tax or CGT to disclose. Where the income or gains relate to 2022/23 there is still time to submit a return, and for 2021/22, still time to amend a previously submitted return that is incomplete.

Where undeclared tax remains, it is not compulsory to use this route and individuals with more complex affairs – or any other undisclosed taxes unconnected to crypto assets – might want to take professional advice on whether or not some of the other disclosure options might be more suitable.

Future measures

This is unlikely to be HMRC’s final word on the subject of crypto assets. At the March 2023 Budget, the government announced that for 2024/25 tax returns onwards, crypto asset disposals will need to be separately identified in the CGT pages. This should make it easier for HMRC to identify any disclosures that have been missed and take action.

Further, down the line, from 2027 HMRC should also start to receive information about transactions from crypto asset platforms under the Cryptoasset Reporting Framework (CARF). Forty-eight countries, including the UK, have signed up to the CARF. This will build on existing data exchange protocols for bank interest such as the Common Reporting Standard.

The net is definitely tightening on anyone with crypto assets who has not made all the relevant disclosures to HMRC. Anyone who has not yet disclosed their income or gains from crypto assets should act now.

If you require any clarification on the implications of crypto assets and tax, please do get in touch.