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HMRC to issue ‘nudge’ letters to cryptocurrency investors

The self-employed face additional tax liabilities if they own cryptocurrency, the taxman has warned

HMRC has issued a statement saying it plans to send out letters to cryptocurrency investors, nudging them to check they have paid the right tax.

News of the letters, which are yet to be sent out, was released by trade body CryptoUK.

The tax watchdog told the association it was taking an “educational approach” in order to highlight “some areas people may not be aware of when considering if they have any tax to pay”.

It said: “If you receive a nudge letter it does not necessarily mean you have made an error on your tax return, but you need to ensure that you respond correctly to HMRC.”

HMRC believes large amount of tax from cryptocurrency is undeclared

For the self-employed, the letters will be used to review whether their tax returns are correct and that they have paid the right amount of capital gains tax (CGT) and income tax, if it applies.

Tax experts said the move was a sign that HMRC was seeking to clamp down on tax evasion or avoidance by any means necessary.

Graham Boar from accountancy firm UHY Hacker Young told the Financial Times: “It is likely that HMRC believes large amounts of CGT and income tax generated from cryptocurrency investments have been undeclared for tax purposes. In some cases, this could constitute criminal tax evasion.

“HMRC suspects that there is an increasing amount of hidden wealth thanks to the rise of cryptocurrencies. 

“Many retail investors in cryptocurrencies are under the misunderstanding that HMRC is unable to find out about their crypto investments and any gains they may have made.”

‘Nudge letter’ not a ‘fishing expedition’ expert warns

Tom Wallace, director of tax investigations at WTT Consulting, warned people not to think of the letter as “fishing expedition” and ignore it.

He said: “Whilst receiving such a letter does not necessarily mean that you have a tax liability, it does mean that HMRC have a strong belief that you have been involved in Crypto transactions that may have created a tax liability.  

“You should therefore take the opportunity to have your transaction history reviewed by a tax professional to get a good understanding of your position and how to move forward with HMRC. 

“They will also be able to help you build an effective compliance framework for recording and reporting going forward. Similarly, a well-crafted response now to explain the position may prevent HMRC opening an enquiry into your return at a later date.  

“The one thing not to do is think that this letter is little more than a fishing expedition and as a result consign it to the back of the draw or the bin. HMRC does follow up on these nudge letters and can open enquiries using their civil or criminal powers.”

 

By Contractor Weekly

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2 thoughts on “HMRC to issue ‘nudge’ letters to cryptocurrency investors”

  1. Johnny

    J Edgar Hoover used the same techniques.
    Sending a dossier of transgressions with message ‘lucky we found this before it became public’ was usually enough to modify an individual’s behaviour.

  2. G

    Why are HMRC focussing on Self-employed? I know several employed persons who are trading and making money from cryptocurrency trades. This appears to be a discriminatory move by HMRC.

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