Declare your cryptoassets, HMRC demands

HMRC is demanding that taxpayers under investigation declare cryptocurrency and assets they have in e-money wallets.

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While HMRC has always expected taxpayers to declare all of their assets on the statement of assets form during an investigation, the tax body is now being explicit in its demands for cryptoassets.

What are HMRC’s rules on cryptocurrency?

Cryptocurrencies and assets including Bitcoin, Ethereum and Dogecoin have been in the spotlight in 2021, all seeing various rises and crashes in value – in no small part because of Elon Musk’s social media activity.

Cryptocurrencies are digital currencies that are decentralised – that is, not backed by banks and governments. Transactions are stored and recorded through a secure database called the blockchain, the technology behind cryptocurrency.

HMRC charges tax on cryptocurrency in the same way as gains on other investments. This means gains are subject to capital gains tax (CGT), which taxpayers report on a Self Assessment tax return when they make more than the annual exemption amount of £12,300.

CGT is due on the disposal of cryptoassets, which could include:

• selling cryptoassets for money
• exchanging one type of cryptoasset for another
• using cryptoassets for purchases
• giving cryptoassets away

So, is HMRC’s view of cryptocurrency changing?

Not necessarily. HMRC has always asked taxpayers under investigation to include detailed information about all of their assets, but its updated statement of assets form should act as an important prompt to declare cryptoassets like Bitcoin.

Ultimately, it appears that HMRC’s aim is to leave any ambiguity about the tax treatment of cryptoassets behind.

In 2014, HMRC suggested that trading cryptoassets could be ‘speculative’ and subject to the same rules as gambling – so exempt from tax.

But now, HMRC is keen to clarify the rules. Along with updating its statement of assets form, it published a ‘tax treatment of cryptoassets’ manual in March for its staff.

David Jones, a director at accounting firm UHY Hacker Young, believes that “HMRC suspects that an increasing amount of hidden wealth is slipping through its fingers thanks to the rise of cryptocurrencies and other unsanctioned money transfer systems. This demand for information is an important step in HMRC’s fight-back against that.”

An HMRC spokesperson said: “The majority of individuals and businesses pay the tax that is due – however there remains a determined minority who refuse to play by the rules.

“We take robust action to make sure that everyone pays the tax due – from individuals operating in the hidden economy through to action against sophisticated organised crime groups, and complex investigations into offshore structures used to hide earnings and other assets.”

What do you think about HMRC’s rules on cryptoassets? Let us know in the comments below.