HMRC Target Cryptocurrency Investors

HMRC has announced it will launch a new ‘nudge letter’ campaign that will target UK taxpayers who may have failed to pay tax due in respect of their cryptoassets.

Nudge letters

HMRC has in recent years adopted a strategy of sending targeted communications to taxpayers whose tax affairs it suspects may not fully be in order. Recipients have ranged from multinational organisations (where the tax in question was the diverted profits tax) to individuals suspected of having undisclosed offshore income or capital gains. The nudge letters offer the recipients an opportunity to engage with HMRC to remedy the suspected defect outside the normal enquiry process.

Cyrptocurrency

HMRC are now increasingly armed with more and more data, gathered from cryptoasset exchanges and other sources, meaning that investigations into the UK tax affairs of crypto investors are likely to be imminent.

The tax treatment of cryptoassets can be complicated and uncertain. In our experience, some crypto investors, many of whom will be realising sizeable gains in the current tax year, overlook certain fundamentals, such as when a gain might be realised (e.g. when switching from one cryptoasset to another). There are other technical issues to consider, such as the situs of cryptoassets and the impact on disposals for non-UK domicilaries.

Whilst the latest nudge letters will not contain any specific accusations, recipients should assume that they are being targeted on the basis of actual data held by HMRC. Failure to take action, or to respond appropriately, is likely to result in HMRC commencing a formal investigation.

Anyone who receives a nudge letter, or who may be generally concerned about their tax position in respect of cryptoassets, should seek appropriate expert advice as soon as possible.

If you have received a nudge letter from HMRC, whether in relation to cryptocurrency or otherwise, and would like advice on an appropriate response, please contact Adam Craggs or Constantine Christofi.