Investors could soon be receiving warning letters from HMRC as part of a significant capital gains tax enforcement effort, with experts advising individuals to avoid a critical error.
Crypto investors might soon find crucial correspondence from HMRC landing in their mailboxes as the tax authority steps up its campaign to address incorrect Capital Gains Tax (CGT) payments.
While most investments are subject to CGT, it’s particularly the world of cryptoassets that’s under scrutiny due to higher levels of non-compliance, given the complex taxation rules they can attract.
HMRC has calculated that between 55% and 95% of individuals with crypto assets have not been accurate with their CGT submissions. To crack down on this, “nudge letters” will start arriving this week, with another round scheduled for dispatch the following month.
Those who’ve profited from buying or trading crypto assets are reminded they must declare these earnings in a tax return because such investments could be liable for CGT, income tax, and even National Insurance contributions depending on the specifics of how the income was accumulated.
Taking staking of crypto assets as an instance where holders agree to freeze their assets to earn returns akin to interest from a fixed-rate savings account HMRC treats the proceeds as taxable income.
Similarly, activities like disposing of crypto assets, converting them into other cryptocurrencies, or exchanging for traditional currencies could incur a CGT liability at a potential rate of 20%.
Speaking to The Telegraph, Paul Falvey, a partner at tax firm BDO, has issued a stark warning to investors regarding HMRC‘s letters on crypto assets, stating: “Many owners of crypto assets may not be fully aware of their obligations and may not have filed a tax return before.
“They could well get a shock when this letter hits the doormat but the worst thing they could do is to ignore it.”
He urged investors to “bring their tax position up to date” by obtaining reports from their advisers or investment platforms. Falvey also pointed out that some might benefit from specialist advice on the “most appropriate disclosure facility to use”.
Investors could face not only an unexpected tax bill but also hefty late payment interest penalties from HMRC, which can amount to up to 100% of the tax owed.
In its efforts to clamp down on non-compliance, HMRC is collaborating with crypto firms to streamline the detection and correction process. The department is set to receive data on user transactions from crypto platforms in a move towards automation.
