Taxpayers urged to declare reportable crypto profits as HMRC steps up compliance activity

People who made profits from crypto trading in 2021/22 should make sure they meet all relevant reporting requirements when filing their tax returns, accountancy and business advisory firm BDO has warned.

With HMRC taking an increasing interest in taxpayers’ crypto activities, BDO is urging people to better understand their reporting and tax obligations ahead of the 31 January filing deadline.

Tax on crypto assets

HMRC sees the profit or loss made on buying and selling of crypto exchange tokens as within the charge to Capital Gains Tax (CGT). Its guidance says that only in exceptional circumstances will HMRC accept that buying and selling of crypto amounts to a trade for tax purposes.

For individuals, this means that if you have sold crypto for a profit during the tax year (i.e. sold for a price greater than the cost), you may have a reporting and tax obligation, and need to consider whether you need to file a tax return. Here are some key taxation points to bear in mind:

A disposal of crypto occurs when it is sold for money, exchanged for another cryptoasset, used to pay for goods or services, or given away to another person (although gifts to a spouse or civil partner, and some gifts to a charity are effectively exempt).
If your profit is more than your available CGT annual allowance (£12,300 for 2021/22), you need to file a tax return to pay the CGT. Even if your profit is within your CGT annual allowance, if the proceeds are more than four times the annual allowance (ie £49,200 for 2021/22) you need to file a return.
However, if you sold or disposed of cryptos for a loss, you may be able to offset those losses against other capital gains in the same tax year or carry forward the losses for future offset. But you need to register the losses within four years of the end of the year they arose, otherwise you could lose them.
Earnings from employment paid in crypto, rewards from mining activities, staking and airdrops are also within the scope of taxation and need to be included on your tax return.
Valuations for tax purposes need to be in GBP sterling, so crypto denominated in non-sterling value will need to be converted at the transaction dates.

Dawn Register, Head of Tax Dispute Resolution at BDO said:

“For working out capital gains or losses, people will need to retain records of their crypto acquisitions to enable them to accurately work out the gain or loss for the tax year of disposal. They will also need to keep those records in the event that HMRC opens an enquiry.

“HMRC has recently taken a much greater interest in taxpayers’ crypto trading activity, and has issued ‘nudge’ letters to those it suspects of failing to declare their crypto profits.

“In future, HMRC will get data direct from crypto platforms and exchanges so they should be able to accurately identify those taxpayers who have not reported their transactions correctly.

“We would expect an increase in compliance activity in 2023, so affected taxpayers should take note.”

ENDS

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