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UK crypto investors; are you keeping HMRC informed?

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Cryptocurrency and NFTs are changing the world at a rapid pace; but whether through intentional ignorance or by innocent unawareness, many crypto investors in the UK are still neglecting their tax responsibilities.

Whether you already own crypto assets, or you’re looking to get into mining or purchasing crypto assets, here’s why you’ll want to let HMRC know as soon as possible.

Crypto assets are taxable

In the UK, cryptocurrency and other digital tokens are not currently liable for VAT (although goods and services purchased with crypto assets most certainly are).

There are also no specific taxes in the UK which directly target crypto assets; and combined with HMRC’s lack of clear guidance over the years, it’s led many crypto investors to assume they don’t owe any tax on their assets or profits.

Unfortunately, this simply isn’t true. Crypto is not tax-free.

Depending on your crypto investment activities and your own particular circumstances, you might be liable for capital gains tax, income tax, National Insurance contributions and/or corporation tax.

This could remain the case whether you’ve bought/sold tokens, acquired them for free via airdrops/referral bonuses, or gifted them to others.

But what if you just don’t tell HMRC about your virtual currency? Well, that brings us to our next point…

Business Accountants in London
Business Accountants in London

HMRC are likely to find out

The taxman has been slow to react to the rise of cryptocurrency and NFTs; but they’re catching up.

If you’ve ever signed up to a UK crypto exchange or wallet, HMRC probably already has tabs on you. Over the past half-decade, they’ve been working with UK crypto exchanges to gather data on crypto trades and the people making them.

Since October, HMRC has also been sending out reminder letters to UK taxpayers who are known or suspected to be underpaying the tax owed on their crypto investments.

If you’ve let crypto assets and/or crypto trading profits go unreported to HMRC, don’t wait to receive a letter. We’d recommend contacting them as soon as possible; and if you’re running a crypto asset business, there’s someone else you’ll need to notify…

The FCA might want to know

While it’s unrelated to taxes, we thought it was important to mention that the Financial Conduct Authority (or FCA) now requires crypto asset businesses to register with them in order to comply with the Money Laundering Regulations.

This is to help prevent crypto being used to conceal illegal funds. Breaching the regulations could land you with a hefty fine from HMRC.

It’s important to note, however, that only crypto businesses (such as wallet and exchange services) are required to register. The average crypto investor’s activities generally fall outside the scope of the regulations, and don’t require registration.

Business Accountants in London
Business Accountants in London

The good news: you might not owe any crypto tax at all

Hopefully by now, the importance of keeping records of your crypto assets – and letting HMRC know about them – should be fairly clear.

But if you’re worried about outstanding tax bills decimating the potential profits of your crypto wallet, don’t panic; you might not owe any tax on them yet!

For 2021 to 2022, capital gains tax is subject to an annual tax-free allowance of up to £12,300. If you’ve disposed of crypto assets during the year, but your gains have not exceeded the tax-free threshold, there’s no CGT to pay.

It’s best to sit down with a specialist accountant who understands crypto tax. They’ll be able to identify how your crypto investments might impact your tax liabilities, work out exactly how much you might owe, and file all the necessary information to keep HMRC happy.

At GNS Associates, we’re helping clients get to grips with crypto tax and keep their digital investments in line with HMRC regulations. If you need a hand with your digital currency finances, get in touch on 0208 090 2604 or at info@gnsassociates.co.uk to see how we can help you.

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