A Compelling Case Study on Successfully Resolving a Tax Investigation for a Cryptocurrency Client
This case involves a client who encountered challenges with their tax return for the FY2019-2020 tax year. Their original accountant was not familiar with crypto taxation and did not reconcile balances nor used appropriate crypto tax rules when submitting the tax return. This resulted in HMRC opening a tax investigation enquiry, which neither the accountant nor the client could support the enquiry with necessary evidence and data. As a result, the client sought out an experienced cryptocurrency accountant to handle the complexities of their situation.
How we helped:
After reviewing the client’s historical transactions, we discovered that there were inaccuracies in their previous tax submissions due to an incomplete transaction history and incorrect cryptocurrency tax calculation. After we gathered all transactions from various exchanges and wallet addresses used by the client since they started their crypto activities in 2011, we found that there were many missing records, particularly for BTC and ETH trades during the initial period. To complete the transaction history, blockchain explorers were used to track the missing transactions up to the current tax year.
The clients’ transactions were re-classified and coded using one of our crypto tax calculation software tools to ensure appropriate tax treatment. We also reconciled and remediated balances in the exchanges and wallets to ensure accuracy and completeness. These transactions included trading, staking, mining, forks, airdrops, and spending via a crypto debit card.
Using the re-calculated figures, an amendment tax return was submitted for the FY2019-2020 tax year and a voluntary disclosure was made for the prior periods of FY2017-2018 and FY2018-2019. The client’s tax position was optimised by claiming allowable losses and expenses.
Outcome:
After submitting the amended tax return and voluntary disclosure, HMRC requested supporting documents for our calculations. We were able to provide all necessary documents and successfully clarified any queries from HMRC. As a result, HMRC accepted the amendment and approved the disclosure offer, closing the tax investigation enquiry.
After successfully clearing the investigation, the client felt relieved and achieved peace of mind.
We are continuing to support the client in the subsequent tax years for cryptocurrency compliance and reporting and tax planning.
