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BKL's Geraint Jones warns that HMRC is taking a proactive approach to taxing cryptocurrency gains.

Interest in cryptocurrency is continuing to grow and HMRC is no exception. It has reportedly been in contact with various cryptocurrency exchanges trading in the UK – eToro, Coinbase and CEX.IO – to request data on customers and transactions, as it seeks to claim unpaid capital gains tax (CGT).

Without this data, HMRC faces a challenge in tracking tax liabilities because of the anonymous nature of digital currency trading.

HMRC has explained this approach:

“These exchanges can retain information on their clients and the transactions that they have completed.

These transactions may result in potential tax charges and HMRC has the power to issue notices requiring exchanges to provide this information.”

Last December, we reported on HMRC issuing guidance on the taxation of cryptocurrencies for individuals. Within this guidance, HMRC stated its position on CGT:

‘"MRC would expect that buying and selling of cryptoassets by an individual will normally amount to investment activity (rather than a trade of dealing in cryptoassets). In such cases, if an individual invests in cryptoassets they will typically have to pay capital gains tax on any gains they realise.

Cryptoassets are digital and therefore intangible, but count as a ‘chargeable asset’ for capital gains tax if they’re both:

• capable of being owned
• have a value that can be realised"

It’s therefore no surprise that HMRC is targeting holders and traders of cryptocurrencies – and Iqbal Gandham, Etoro’s managing director in the UK, shares that view, saying:

“Taxing crypto is the first step to bringing it in line with other investments, solidifying its position as an emerging asset class. I expect regulation will come next, which will be a good thing for the industry and for mass adoption.”

As we have reported in our roundups of fintech news, we’ve seen increasing moves towards regulation from UK-based and international organisations alike. For example, in June, the Financial Action Task Force published guidance on how participating nations should supervise digital assets.

Coindesk quoted one industry insider’s opinion of who may be most affected:

“If [HMRC] only go back two or three years … the individuals who went into crypto very early on in 2012-13 will not be affected. The ones who probably made the largest gains won’t be affected, it will be the people who came in around the time crypto peaked.”

If you have traded Bitcoin or other cryptocurrencies, all this should serve as a reminder that while your gains may not be known to HMRC at this moment, they are by no means invisible. Whether your transactions took place two years ago, longer ago or more recently, they will have been recorded and HMRC has the power to chase this information (not to mention the potential revenue associated with it).

How BKL Can Help Cryptocurrency Holders

Summing up its approach to the cryptocurrency exchanges, HMRC said: “We want to help people get their tax affairs right and believe that taxpayers want to get it right.” However, this overlooks the difficulty which some people may experience in understanding the CGT and other tax implications around their other cryptoasset holdings.

BKL’s tax specialists are able to advise clearly and accurately on the tax implications of buying and selling cryptocurrencies, mining cryptocurrencies, arbitraging exchanges and margin trading as well as transferring back into ‘fiat currencies’ and ensure that all disclosures are made precisely and promptly to HMRC. This will provide peace of mind and the assurance that you are complying fully with the law.

For more information or help from one of our tax specialists, please contact us using our enquiry form.