Cryptocurrency is not currency, but it is taxable

Published by George Guilherme-Fryer on 30 November 2023

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Whilst this point has not yet been tested at a tribunal, HM Revenue & Customs’ (HMRC) view is that cryptocurrencies aren’t actually a form of currency but are in fact a separate asset class and therefore they are taxable in a similar way to more traditional assets.

HMRC have for some time now, been sending one-to-many ‘nudge’ letters to individuals they believe have been purchasing and disposing of cryptoassets including exchange tokens, NFT’s and utility tokens. To support those individuals, they have just launched a new disclosure facility for those who haven’t yet paid the correct amount of tax.

How are cryptoassets taxed?

The majority of cryptoassets disposals will be subject to capital gains tax. However, there are some instances where instead they are taxed as income at generally higher rates, for example mining or staking. Please see this article for more details.

A disposal is defined by HMRC as:

  • selling tokens for money, or
  • exchanging tokens for a different type of token, or
  • using tokens to pay for goods or services, or
  • giving away tokens to another person (unless it’s a gift to their spouse or civil partner).

If your cryptoassets have become worthless and cannot be sold due to a lack of liquidity, then a negligible value claim may also be worth considering. This allows the asset to be treated as disposed of even if you still hold them in order to claim a loss.

These disposals should be declared on a self-assessment tax return.

Who is the disclosure facility for?

If an individual hasn’t notified HMRC of a liability or has made a mistake in calculating the tax due, then they should disclose this at their earliest opportunity. As cryptoassets aren’t widely understood it is important to ensure that tax advisors and HMRC staff are appropriately knowledgeable. The disclosure facility is a formal method for providing the relevant details to caseworkers inside HMRC who have the expertise to be able to handle that person’s affairs.

What should I do if I haven’t notified HMRC?

Nudge letters are part of HMRC’s ongoing ‘upstream compliance’ effort; a method by which they encourage taxpayers to proactively correct their affairs without the need for direct HMRC intervention such as an enquiry. As cryptoassets are a new concept, it naturally follows that mistakes will be more common than with traditional assets. This is especially true considering the complicated tax treatment. Either way, coming forward at an early opportunity with the support of an experienced tax advisor will provide the best possible outcome.

Expert advice is always recommended when dealing with any type of HMRC intervention. To fully support you, Kreston Reeves has a dedicated team of Tax Disputes and Risk Management specialists who have significant experience in managing disclosures and enquiries connected with cryptoassets.

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