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HMRC Cryptocurrency Enquiries

In recent years, HMRC has had greater visibility of cryptocurrency accounts and transactions and has therefore been able to identify accounts which HMRC believes have not been declared correctly for tax purposes. In its crackdown on tax irregularities relating to cryptocurrency, HMRC has focused on cryptocurrency enquiries and requested individuals come forward and make disclosures to correct their tax position. During 2022 the BBC reported that HMRC seized £1.4m generated from a cryptocurrency fraud scheme and arrested three individuals. 

Cryptocurrency is still generally decentralised which causes regulation to be difficult and often reactive rather than proactive. Since 2020, the Financial Conduct Authority has required businesses that use cryptocurrency to seek registration and comply with anti-money laundering and counter-terrorist financing policies. 

What is Cryptocurrency and what tax do I need to be aware of?

Cryptocurrency can be a variety of virtual currencies such as Bitcoin, Ethereum, Litecoin, Monero, Zcash and Ripple. However, there has been confusion within the industry as to whether HMRC sees it as currency or as a traditional asset. 

Where cryptocurrency is seen as a source of income in return for services, HMRC considers the individual responsible to pay both Income Tax and National Insurance. When cryptocurrency is an asset, the Capital Gains Tax regime applies. Another grey area is the location of the currency, which determines the tax rules which apply. HMRC internal guidance states that the location of the asset is based on the ‘residency of the beneficial owner’ when the currency is purely digital. When a crypto-asset is a representation of another physical asset, the location of the physical asset becomes the location of the cryptocurrency.

Should HMRC suspect any irregularities in your reported tax position, they can launch a tax investigation. HMRC could initiate a cryptocurrency-related enquiry if they suspect unreported income or gains due to innocent, careless error or tax evasion. When this happens, you’ll be notified by letter and additional information may be requested. It is important to cooperate with a tax investigation. Getting in touch with a tax specialist early is crucial to minimise disruption. It helps to bring the investigation to a timely conclusion with the right outcome. The tax, interest and penalties are all affected by how the taxpayer responds to HMRC and the specialist support sought. A tax specialist such as one of the team at NHD Tax Solutions can support you through the process.

Hiring a specialist to support cryptocurrency enquiries

Within the team at NHD Tax Solutions Ltd, we have tax dispute specialists familiar with HMRC challenges related to cryptocurrency. We urge any taxpayer with a letter from HMRC to get in touch as soon as possible. 

How NHD Tax can help

Cryptocurrency taxation is not a topic for the faint-hearted and can confuse even the most mathematical and financial-led minds. The team at NHD Tax Solutions Ltd have become experts in the area. This is due to extensive research and discussion with relevant individuals within HMRC to grasp a full understanding of the situation and how to handle these types of tax investigations. To reduce the likelihood of receiving the dreaded HMRC letter, know your responsibilities when owning cryptocurrency. Get in touch with us by calling 0114 290 3608 to discuss how we may be able to support you.

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