40% rise in crypto ownership will ramp up tax compliance activity warns BDO
40% rise in crypto ownership will ramp up tax compliance activity warns BDO
The 40% rise in the number of Britons owning crypto-assets revealed by the latest FCA survey will lead to a ramping up of compliance activity against those who fail to pay the correct tax on their crypto gains, accountancy and business advisory firm BDO has warned.
The FCA’s survey, published today, found that 12% of UK adults – equivalent to 7 million people - now own crypto-assets. This is up from 10% of adults - or 5 million people - in 2022.
According to the survey, the value of holdings is also rising. The average value of crypto-assets held by people increased from £1,595 to £1,842 when compared to the previous wave of the survey in August 2022.
Among crypto owners, 19% now own holdings with a value of between £5000 and £10,000, up from 6% in the previous wave of the survey.
While there has been a huge growth in crypto ownership, there remains a high degree of confusion among crypto-asset investors when it comes to the tax treatment of crypto gains, according to separate research from HMRC.
While there can be complexities, in simple terms HMRC sees the profit or loss made on buying and selling of 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, you may have reporting and tax obligations, and need to consider whether you need to file a tax return.
HMRC has recently ramped up its efforts to clamp down on non-compliance. In August this year, it launched a new ‘nudge’ letter campaign targeted at those the tax authority knew had disposed of crypto assets.
Last year, HMRC instigated a new campaign to encourage people to come forward and disclose any unpaid tax on crypto assets such as exchange tokens, NFTs and utility tokens – the first time the tax authority had introduced a specific disclosure process for those owning crypto assets.
Soon, the tax authority will have access to a much richer set of crypto-asset transactions data through the OECD’s Crypto-Asset Reporting Framework (CARF). This will provide for the automatic exchange of information between international tax authorities on crypto exchanges, the goal being to combat offshore tax avoidance and evasion.
Elsa Littlewood, a tax partner at BDO said:
“With crypto-asset ownership among UK investors rising at a rapid rate and the value of some cryptocurrencies reaching record levels in recent weeks, HMRC will be extremely keen to ensure that people are paying the correct amount of tax on their crypto gains.
“There is a lot of confusion around when and how tax is applied to cryptocurrency. For example, not everyone will know that tax may be due when they exchange one cryptocurrency for another or pay for a product or service using cryptocurrency. However, the tax authority doesn’t see ignorance of the law as an excuse.
“HMRC has been ramping up its compliance activity considerably in recent years. In some cases, people can find that several years of unpaid tax may be payable. Depending on the reason why gains have been undisclosed to date, HMRC can have up to 20 years to assess additional tax.
“Those who made crypto gains during the 2023-24 tax year should consider whether they are required to disclose their gains in their Self Assessment before the 31 January 2025. Anyone needing to bring their tax position up-to-date from previous years can use HMRC’s specific disclosure opportunity for unpaid tax on cryptoassets. However, there may be more suitable disclosure options based an individual’s personal circumstances, so specialist advice may be required.
ENDS
Note to editors
About BDO
Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.
The organisations we work with are Britain’s economic engine; entrepreneurially-spirited, high-growth businesses that fuel the economy.
We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.
BDO LLP
BDO LLP operates in 18 offices across the UK, employing 8,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
BDO’s global network
The BDO global network provides business advisory services in 166 countries and territories, with more than 115,000 people working out of 1,776 offices worldwide. It has revenues of US$14bn.
Contacts
Frank Shepherd
frank.x.shepherd@bdo.co.uk
07812 463601
The FCA’s survey, published today, found that 12% of UK adults – equivalent to 7 million people - now own crypto-assets. This is up from 10% of adults - or 5 million people - in 2022.
According to the survey, the value of holdings is also rising. The average value of crypto-assets held by people increased from £1,595 to £1,842 when compared to the previous wave of the survey in August 2022.
Among crypto owners, 19% now own holdings with a value of between £5000 and £10,000, up from 6% in the previous wave of the survey.
While there has been a huge growth in crypto ownership, there remains a high degree of confusion among crypto-asset investors when it comes to the tax treatment of crypto gains, according to separate research from HMRC.
While there can be complexities, in simple terms HMRC sees the profit or loss made on buying and selling of 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, you may have reporting and tax obligations, and need to consider whether you need to file a tax return.
HMRC has recently ramped up its efforts to clamp down on non-compliance. In August this year, it launched a new ‘nudge’ letter campaign targeted at those the tax authority knew had disposed of crypto assets.
Last year, HMRC instigated a new campaign to encourage people to come forward and disclose any unpaid tax on crypto assets such as exchange tokens, NFTs and utility tokens – the first time the tax authority had introduced a specific disclosure process for those owning crypto assets.
Soon, the tax authority will have access to a much richer set of crypto-asset transactions data through the OECD’s Crypto-Asset Reporting Framework (CARF). This will provide for the automatic exchange of information between international tax authorities on crypto exchanges, the goal being to combat offshore tax avoidance and evasion.
Elsa Littlewood, a tax partner at BDO said:
“With crypto-asset ownership among UK investors rising at a rapid rate and the value of some cryptocurrencies reaching record levels in recent weeks, HMRC will be extremely keen to ensure that people are paying the correct amount of tax on their crypto gains.
“There is a lot of confusion around when and how tax is applied to cryptocurrency. For example, not everyone will know that tax may be due when they exchange one cryptocurrency for another or pay for a product or service using cryptocurrency. However, the tax authority doesn’t see ignorance of the law as an excuse.
“HMRC has been ramping up its compliance activity considerably in recent years. In some cases, people can find that several years of unpaid tax may be payable. Depending on the reason why gains have been undisclosed to date, HMRC can have up to 20 years to assess additional tax.
“Those who made crypto gains during the 2023-24 tax year should consider whether they are required to disclose their gains in their Self Assessment before the 31 January 2025. Anyone needing to bring their tax position up-to-date from previous years can use HMRC’s specific disclosure opportunity for unpaid tax on cryptoassets. However, there may be more suitable disclosure options based an individual’s personal circumstances, so specialist advice may be required.
ENDS
Note to editors
About BDO
Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.
The organisations we work with are Britain’s economic engine; entrepreneurially-spirited, high-growth businesses that fuel the economy.
We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.
BDO LLP
BDO LLP operates in 18 offices across the UK, employing 8,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.
BDO’s global network
The BDO global network provides business advisory services in 166 countries and territories, with more than 115,000 people working out of 1,776 offices worldwide. It has revenues of US$14bn.
Contacts
Frank Shepherd
frank.x.shepherd@bdo.co.uk
07812 463601