QUESTION: I have bought and sold crypto currencies over the past few years but never thought about declaring the profit or loss as I assumed it was gambling and tax exempt. I heard on the radio last week that there is a tax crackdown on undeclared crypto gains. Is this correct?
ANSWER: On November 10 past, HMRC launched a voluntary disclosure campaign to encourage individuals who have unpaid tax on income or gains arising from crypto assets to come forward and report them and pay the appropriate tax. Crypto assets include items such as currencies and tokens.
This has come about as the OECD has decided to crackdown on the billions of unpaid taxes worldwide that emanates from dealing in crypto assets. The Crypto-Asset Reporting Framework (CARF) is being led by the UK and is the OECD’s tax transparency standard. As a result of this standard, crypto platforms will have to start sharing taxpayer information with tax authorities which does not happen at present. The tax authorities will then exchange information to crackdown on international tax evasion occurring via crypto exchanges. The exchange of information will start in 2027.
There is a lot of misunderstanding about the requirement to report profits earned from crypto trading. The UK Government estimates that this non-compliance among the crypto community could be as high as 95% which is a staggering figure. What people do not often realise is that if they undertake transactions like exchanging one form of crypto asset for another, they can trigger a capital gain. Crypto transactions can be so numerous and complex that thankfully there are software platform providers which produce annual tax packs for traders.
If you do have unreported crypto gains, then you should first of all speak with a professional adviser and have the gains or losses properly computed. Your particular circumstances sound like you are a ‘day-trader’ in crypto assets however the profits are almost certainly likely to be subject to capital gains tax (CGT) and not income tax. CGT on this type of gain is taxed at a flat 20% rate after an annual CGT exemption which is £6,000 however your historic gains will be in different tax years and the CGT exemption applicable to each year will be available to you. The exemption was £12,300 in the 2022/23 tax year for example.
Another area to be wary of is the matching rules which dictate which sales are matched with which purchases to enable the gain or loss to be calculated. Disposals are first matched with assets acquired on the same day, then with assets acquired in the following 30 days and finally against the average cost of any unmatched assets otherwise known as ‘the pool’.
In summary, you would we well advised to voluntarily approach HMRC either directly or through a tax adviser and settle any taxes due. This will greatly mitigate any potential penalty that may apply.
:: Paddy Harty (firstname.lastname@example.org) is private client tax partner at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies