HMRC has launched 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.

Although taxpayers have previously been able to use other HMRC disclosure facilities to declare unpaid tax, this is the first time the tax authority has launched a specific disclosure process for those owning crypto assets.

The move underlines concern that many crypto asset owners may be unaware of their obligations and have failed to properly disclose taxable gains.

Several years of unpaid tax may be payable and, depending on the reason why it is undisclosed so far, HMRC can have up to 20 years to assess additional tax. If additional tax is due then HMRC will also charge late payment interest on that tax. It can also impose tax-geared penalties of up to 100% of the tax – or more if the holding was based offshore.

The tax treatment of crypto assets can be complex. However, 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. 

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HMRC research published in July 2022 found that one in 10 of the adult population in the UK population held crypto assets. Ownership was more prevalent among men (13%) than women (6%), and more concentrated among younger age brackets. HMRC’s research found that 20% of 18-24 year-olds and 15% of 25-44 year-olds owned crypto assets compared with 6% of 45-64 year-olds and just 2% of over 65s.

However, most owners had holdings of less than £5,000 and many people were unaware of the correct tax treatment for crypto gains.

Dawn Register, Head of Tax Dispute Resolution at accountancy and business advisory firm BDO said, “The launch of this new disclosure facility highlights HMRC’s concern about non-compliance among crypto asset owners and underlines its determination to recover unpaid tax.

“As ownership of crypto assets tends to be concentrated among young adults, much of this non-compliance may stem from people simply not knowing or understanding their tax obligations when it comes to crypto. This facility could therefore be a very useful opportunity to rectify past mistakes.

“Individuals will need to get reports from their financial advisers or online platforms to understand their tax position. In certain circumstances, those affected would do well to seek specialist advice on the most appropriate disclosure facility to use.”

HMRC will soon start to receive automatic information about individuals’ trading activities from crypto platforms. This follows the UK’s recent announcement that it intends to implement the OECD’s Crypto-Asset Reporting Framework (CARF) by 2027, which provides for the automatic exchange of tax-relevant information across international borders.

The government has also explored options for recovering unpaid tax by giving HMRC powers to recover monies directly from digital wallets.