According to government statistics, in 2022 nearly five million people owned cryptoassets such as Bitcoin and Ethereum.  This statistic prompted HMRC to start a campaign in late 2023 to track down those who had bought and sold them.  It’s now following this up with investigations into the tax affairs of cryptoasset owners it believes may owe tax on transactions made in 2022/23 or earlier years.

When HMRC starts an enquiry you’ll receive a letter stating the legislation it’s using as authority.  The enquiry letters relating to cryptoassets then ask for records of your cryptocurrency transactions for one or more tax years.  HMRC is asking for the information and documents to be provided within 30 days.  If you don’t expect to be able to comply you should contact HMRC without delay and ask for more time.  They are usually happy to agree to this.

Buying and owning cryptoassets does not itself cause you to be liable to tax, even where their value has grown substantially.  HMRC is only interested where you have received income or made gains by selling the assets.  Even then it won’t necessarily mean you have tax to pay.  Be mindful that occasions of disposal of the asset (and therefore a possible gain arises) includes:

  • Selling the cryptoassets for money;
  • Exchanging cryptoassets for a different type of cryptoasset;
  • Using cryptoassets to pay for goods or services; and
  • Gifting crpytoassets

If you have bought and sold cryptoassets infrequently, any gains (after knocking off any losses) you have made fall within the scope of capital gains tax (CGT).  However, if your gains for a tax year from the sale of all assets – not just the cryptoassets – were less than the CGT annual exemption there’s no tax to pay and possibly no requirement to have reported the transactions, so you can breathe easy even if you receive an HMRC enquiry notice.  

However, if you frequently trade in cryptoassets HMRC might consider that you’re liable to income tax on any gains (net of losses) you make.  The CGT exemption won’t apply and if you haven’t declared your gains you might have tax to pay.  Cryptoassets may also be received as employment income and are liable to income tax and NIC.

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You can also find further information on the HMRC website