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HMRC’s New Cryptoasset Disclosure Facility

In recent years, the world of cryptocurrencies has witnessed unprecedented growth and innovation. With the rise in use of various digital assets, including exchange tokens, NFTs (non-fungible tokens), and utility tokens, the landscape of financial transactions has evolved and it’s crucial to understand and comply with tax regulations to avoid potential issues down the line.

Have you been paying taxes on crypto?

It’s quite possible that investors in crypto have not historically complied with UK tax law and may have unintentionally overlooked reporting income or gains from cryptoassets. HMRC has now introduced a new digital disclosure facility specifically for cryptoassets. This initiative allows individuals to make a voluntary disclosure of any unpaid tax related to their cryptoassets and demonstrates HMRC’s commitment to taxing crypto income and gains.

Understanding Cryptoasset Taxation

The taxation of cryptoassets can be intricate, and it’s essential for individuals to grasp when a transaction might have a tax impact. Whether you’ve earned income from trading exchange tokens, profited from the sale of NFTs, or engaged in transactions involving utility tokens, each activity may have distinct tax considerations, as discussed in our article here.  

The law is complex and evolving, and there are a number of common misconceptions when transacting with crypto so it’s important to seek professional advice if you’re not sure whether you have anything to report. 

The importance and benefits of making a Voluntary Disclosure

If you’ve realised that you may have unpaid tax on your cryptoassets, it’s in your best interest to proactively address the issue. Voluntary disclosure demonstrates a commitment to compliance and will lead to more favourable outcomes compared to waiting for HMRC to discover any discrepancies. In particular, you will be subject to higher financial penalties if HMRC prompt you to make a disclosure before you come forward yourself. Proactive disclosure also helps achieve a quicker resolution with HMRC.

By utilising the Cryptoasset Disclosure Facility, individuals can provide HMRC with a comprehensive overview of their cryptoasset-related activities. This includes details about income, gains, and transactions involving exchange tokens, NFTs, and utility tokens.

Steps to Making a Voluntary Disclosure

Notify HMRC of your intent to disclose: We use the official HMRC online portal to initiate the voluntary disclosure process which is the same for other types of voluntary disclosure as outlined here.

Preparing the disclosure: Once we have notified HMRC, we have 90 days to help you calculate any outstanding UK tax liabilities, and associated interest and penalties. Our approach at Menzies is to prepare an accompanying side letter to the disclosure to help explain to HMRC our methods of calculation in case we need to make any estimates or assumptions. You can help this process by gathering all relevant information about your cryptoasset transactions, including dates, amounts, and counterparties.

Submitting the disclosure: Once finalised, we submit the disclosure online with our accompanying letter and any relevant workings, providing detailed information to HMRC ensuring transparency in reporting your cryptoasset-related income and gains.

Payment of outstanding tax: If your disclosure reveals unpaid tax, it’s essential to settle the outstanding amount promptly, ordinarily at the same time as the disclosure is submitted. If necessary, we can help you agree payment arrangements with HMRC.

How can Menzies Crypto Tax services help you?

In the rapidly evolving world of cryptoassets, staying on top of tax obligations is vital for individuals engaging in digital asset transactions. HMRC’s Cryptoasset Disclosure Facility serves as a valuable tool for those who recognise the need to rectify any inadvertent oversights in their tax reporting and early disclosure will be key. We can be fairly certain that HMRC will issue nudge letters relating to unpaid tax on crypto in the years to come so it is best for taxpayers to stay on top of their obligations and make a disclosure sooner rather than later.

At Menzies we have both crypto tax specialists, who can assist with collating and calculating your cryptoasset tax position; and Tax Disputes and Disclosure experts who can provide support throughout the entire disclosure process with HMRC to ensure your tax affairs are fully brought up to date on the best available terms.

If you have concerns about undisclosed tax liabilities due to your crypto activities, or any other irregularities in your tax affairs, get in touch with the Menzies experts by leaving an enquiry or calling us on our free hotline below for crypto tax advice:

Call our free confidential hotline – 07813003194


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