With the market capitalisation of the cryptocurrency hitting £3 trillion in 2021 and the FCA estimating that 2.3 million people in the UK have invested in digital assets, HMRC is ploughing more resources into tackling non-compliance.
Our dedicated crypto-asset team have extensive experience with blockchain innovations including cryptocurrency and NFTs.
The digital asset market has exploded in the past four to five years with investors across the globe looking to capitalise on potentially life-changing gains. In the UK, this has not gone unnoticed and HMRC have sent a series of ‘nudge’ letters to crypto investors questioning whether they have declared their capital gains on the sale of crypto assets.
Unless trading full time, the transactions are likely to fall within the existing capital gains tax (CGT) legislation, meaning that annual gains over £12,300 (the UK annual exempt amount) will be taxable at 10% for basic rate and 20% for higher and additional rate taxpayers.
The OECD recently commissioned a public consultation document concerning a new global tax transparency framework to provide for reporting and exchange of information in respect of crypto-assets, and is also looking to amend Common Reporting Standard to encompass crypto-assets within the cross border exchange of financial information. The implications for UK crypto-asset investors will be HMRC having access to transactional data from various third-party custodians such as centralised exchanges. In January 2022 Coinbase wrote to their customers to advise them they would be required by HMRC to supply details of individuals holding more than £3,000 on their platform within a specific time frame. Other platforms will have similar requirements moving forwards.
How we can help individuals
Our dedicated cryto-asset team have many years experience in private client taxation and understand the markets and innovation behind blockchain and NFTs.
Read more: Crypto-traders – are HMRC coming for you?
It is a requirement to notify HMRC of all capital transactions where total annual proceeds exceed four times the annual exempt amount (currently £12,300), meaning that where total proceeds from sales of crypto assets in any given tax year exceed £49,200, these must be reported to HMRC. With crypto tokens being swopped regularly by some investors, that threshold is likely to be exceeded in many cases.
There is also a requirement to bank any losses against future gains within four years of the end of the tax year in which the loss was made. It is also possible to make a ‘negligible value claim’ where crypto assets become worth next to nothing. This can help bank losses early to offset against gains of that or future tax years.
Additionally, there are complex rules around staking and mining, which are not always easy to navigate and can mean that an investor is liable for income tax, rather than capital gains tax.
We can help crypto investors ensure that the correct declarations are submitted to HMRC and losses banked and offset in the most tax efficient manner.
How we can help businesses
The UK Government look to incentivise companies that work on innovative projects in science and technology by offering enhanced deductions on qualifying ‘Research and Development’ expenditure of up to 230%, as well as credits of up to 14.5% on surrenderable losses.
The most generous tax breaks apply to small and medium sized enterprises but larger companies can also benefit.
Those operating within the blockchain and De-Fi space are entitled to make a claim if the company and it’s activities are qualifying. We can review the activities and submit claims where appropriate.
As well as Research and Development, we can also advise on/deal with:
- Funding through EIS, SEIS and VCT schemes as an alternative to an ICO
- The tax implications of the award of digital assets to employees/officers of the business.
- Group structures including overseas aspects
- The completion of Corporation Tax Returns and Company Accounts
- Companies House filing
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