HM Revenue & Customs has begun to issue ‘nudge letters’ to cryptoasset owners who may have underpaid tax when selling their assets, urging them to amend or submit a tax return.
This follows the introduction of CARF – The Cryptoasset Reporting Framework – earlier in 2024, requiring cryptoasset firms to share customer data with HMRC when requested.
With cryptoassets having grown in popularity only relatively recently, asset holders are not always entirely clear on what income or profit generates a tax liability, which can lead to reporting and payment obligations not being met.
What do I need to report?
Profit on the sale (disposal) of cryptoassets are typically considered to be capital gains rather than income – although income on investments in cryptoassets may be subject to Income Tax and National Insurance Contributions (NICs).
Any gain (profit) you make when disposing of cryptoassets will therefore be subject to Capital Gains Tax (CGT).
You will be taxed at a rate of:
- 10 per cent – on gains within the basic Income Tax band, if you pay the basic rate on your income.
- 20 per cent – on gains that exceed the basic Income Tax band, if you pay the basic rate on your income or if you are a Higher Rate taxpayer.
The rate of Income Tax that is payable, if this is due, will depend on your other income in the tax year, and it may become necessary to report cryptoasset income via a Self-Assessment Tax Return. It is therefore important to keep proper records of any transactions.
Mitigating tax liabilities
If your total gains are less than £3,000 (including any other capital gains you have made in the financial year), then you do not have to report and pay CGT on cryptoassets.
You may consider planning the disposal of cryptoassets before or after the start of a new financial year to maximise each year’s allowance.
You should also make sure that you have applied any allowable business expenses to your taxable profit when reporting investment income for Income Tax and NICs.
Whether you are an individual or limited company, we can help you to understand the relevant tax consequences and, indeed, how much tax you may be liable to pay.
We can help you to identify how any income, gain or profit that you have made should be treated for tax purposes, and assist you to ensure that you are reporting to HMRC in the correct way.
Contact us for further advice on cryptoassets and Capital Gains Tax.
