HM Revenue & Customs (HMRC) is tightening its oversight on cryptoasset transactions, issuing letters to individuals who may have underpaid taxes on their digital asset sales.
These letters encourage recipients to review and, if necessary, amend their tax returns.
As the crypto sector continues to evolve rapidly, many asset holders remain uncertain about their tax obligations, particularly regarding what constitutes taxable income or gains.
The increased scrutiny follows the introduction of the Cryptoasset Reporting Framework (CARF) in early 2024.
This new regulation requires cryptoasset firms to provide customer data to HMRC upon request, enhancing the tax authority’s ability to track and assess potential tax liabilities.
What needs to be reported?
Typically, profits from selling cryptoassets are considered capital gains, subject to Capital Gains Tax (CGT), rather than income.
However, any income generated from cryptoasset investments may be liable for Income Tax and National Insurance Contributions (NICs).
The rate at which your gains are taxed depends on your income tax band:
Gains should be reported through HMRC’s Self-Assessment Online Service, where you’ll receive details on the amount of CGT due, along with payment instructions and deadlines.
Strategies to reduce tax liabilities
If your total gains, including those from other capital assets, are less than £3,000 in a financial year, you won’t need to report or pay CGT on your cryptoasset disposals.
To maximise your tax-free allowance, consider planning the timing of your cryptoasset sales around the start of a new financial year.
Additionally, ensure that you apply any allowable business expenses against your taxable profits when calculating Income Tax and NICs on investment income.
