HMRC is pursuing taxes on cryptocurrency transactions

The UK tax authority, HMRC, is sending letters to individuals who may not have paid the correct amount of tax on their cryptocurrency transactions. Many taxpayers are unaware that they may be liable for Capital Gains Tax when disposing of cryptocurrencies. They often mistakenly assume that a tax liability only arises when cryptocurrency is exchanged for traditional currency, such as pounds or dollars. However, a capital gain can also arise in other situations.

When is tax payable on cryptocurrencies?

Tax may be due when an individual exchanges one cryptocurrency for another, uses cryptocurrency to purchase goods or services, or transfers cryptocurrency to someone who is not their spouse or civil partner. HMRC also reminds taxpayers that they may owe Income Tax and National Insurance contributions, depending on the nature of their cryptocurrency activities, such as lending, staking, or "mining."

What to do if HMRC queries your crypto?

Individuals who have additional tax to pay should contact HMRC using the details provided in the letter. If they have filed a tax return, they should amend it. Generally, amendments to a self-assessment tax return can be made up to 12 months from the filing deadline. If this deadline has passed, or if the individual has not filed a return, they should use the Tax Disclosure.

During a Tax Disclosure, HMRC will charge interest on overdue tax and may also impose penalties. Individuals who are certain they do not have additional tax to pay should contact HMRC to clarify their situation.

In any case, appropriate action should be taken within 60 days of receiving the letter to avoid further complications. Understanding your tax obligations regarding cryptocurrencies is crucial to avoid unpleasant surprises from the tax authority.

An example letter from HMRC regarding cryptocurrencies was published on the Mamona website.