HMRC is taking a greater interest in the tax affairs of crypto investors, so make sure clients know the rules, says David Conway.
From talk of plummeting prices and collapsing exchanges not so long ago to now all-time price highs, cryptocurrency arouses excitement and suspicion in equal measure.
Activity in this space continues to be high among amateur and professional investors alike. For example, many top-class footballers and other professional sports people have been heavily investing in crypto as an outside interest, but with little understanding of the potential UK tax exposure they are opening themselves up to.
It is vital that any individual who is resident in the UK considers their tax reporting obligations. Any exchange of tokens is considered a disposal for UK tax purposes, regardless of whether it is converted back to fiat currency or into another token.
This is an area of increasing interest to HMRC, whose stance on the tax implications is well laid out in their extensive crypto assets manual. HMRC has also announced that changes will be made to self- assessment tax returns from the 2024/25 tax year to give crypto its own section in the Capital Gains Tax pages. The aim of the changes is to make it harder for investors to overlook their reporting requirements.
HMRC have also been sending so-called ‘nudge letters’ to individuals who they believe have been involved in crypto and not reported their activity. Individuals should not therefore wait, they must ensure they are tax compliant now.
There are many different types of crypto assets, the main types are as follows:
- Exchange tokens: by far the most common category and what most people would consider ‘cryptocurrency’. The two most common examples are Bitcoin and Ethereum. They also include Stable coins which (in theory) are pegged to another asset class.
- Utility tokens: tokens that provide the holder with access to goods or services.
- Security tokens: as the name suggests, these act as a security in a business, similar to a shareholding.
Download the full article below: