HMRC is taking a more active role in recovering tax due from those involved in the crypto asset world. Taxpayers are being encouraged to use HMRC’s new online disclosure facility to declare any unpaid taxes. This voluntary scheme covers tax due from crypto asset dealing, including exchange tokens, NFT’s and utility tokens.

Whilst this initiative might seem new, HMRC issued guidance in 2018 about paying tax by those involved in crypto assets. Whilst crypto assets can be bought, sold and traded with a high level of anonymity, HMRC suspects it is due substantial tax from those engaged in those activities.

Determining your tax liability

Before you make disclosure to HMRC, you need to establish if you have a tax liability.

There is the possibility that you may owe some or all of the following types of tax:

Income tax

Crypto assets trading may have provided you with a taxable income. There may also be national insurance implications if you received crypto assets as part of your salary.

Corporation Tax

If you are a company involved in a crypto asset business or deal in crypto assets, income and gains should be included in your Corporation Tax Return.

Value Added Tax (VAT)

If you are operating as a business with a trading turnover above the VAT threshold you need to account to HMRC for VAT.

Capital Gains Tax

If you have invested in crypto assets and have sold these for gain, you may be liable to Capital Gains Tax.

Disclosure, calculating the tax due, interest and penalties

Next, you need to work out how many years you need to declare. This will depend on why you have not previously declared the tax due. There are three options at this stage.

You underreported the tax liability:

• Even though you took reasonable care;
• Because you did not take care;
• Deliberately.

The extent of the liability, in terms of time, will depend on the reason for underreporting tax:

• If you have taken reasonable care but failed to include crypto assets income or gains in your return, you will face having to pay what you owe HMRC up to a maximum of four years.
• If you did not take care, you will face having to pay what you owe HMRC up to a maximum of six years.
• If you deliberately misled HMRC about the income and gains from crypto assets or simply did not submit a tax return, you will face having to pay what you owe to HMRC up to a maximum of twenty years.

In addition, you will need to pay interest and penalties.

Finally, after you have submitted the unpaid tax calculations to HMRC, you must make full payment within thirty days of submitting the disclosure.

What should I do if I have not declared?

If you are engaged in creating, dealing or investing in crypto assets and have failed to account for income and profits to HMRC take expert legal advice from Lewis Nedas Law’s crypto asset defence solicitors before doing anything.

Blog post by expert crypto asset defence solicitor Siobhain Egan. For expert, trusted legal advice, please telephone us on 020 7387 2032 or complete our online enquiry form.