In our newsletter on 10 January 2019 we were advised to ask clients about their crypto-currency transactions, so that the correct declarations could be made on their tax returns. Those risk-taking clients may have replied – “HMRC will never find out, so I’m not going to declare my crypto-profits”.
Well those clients could be in for a shock, as HMRC has recently written to three crypto exchanges that do business in the UK; Coinbase, eToro and CEX.IO, asking for customer data and transaction histories. HMRC has the power to ask for this information under FA 2008 Sch 36, para 5, and it does not have to identify the individual taxpayers in advance. If the crypto exchanges refuse to provide the data requested, they can be issued with penalties.
As we explained in our 10 January newsletter, any gains made on crypto-assets are taxable and will be subject to CGT. A gain or loss is made whenever a crypto-asset is exchanged for another one, or given away, or surrendered for payment in legal currency, such as US dollars.
The transactions made by UK taxpayers must be calculated and reported in sterling, which means both the buy and sell value has to be stated in sterling. Thus, the gain will incorporate an amount of exchange gain as well as the change in value of the underlying asset.
Where the volume of transactions is very large, the taxpayer may consider he has been trading in the assets, and his profits or losses should be subject to income tax. This approach will be resisted by HMRC.
We are happy to advise you on how to calculate CGT on crypto- assets, and how to make a disclosure of missing profits or gains for earlier years.
Written by the Tax Advice Network