HMRC’s New Warning to Crypto Users: File Tax Returns Now to Avoid Penalties!

HMRC’s New Warning to Crypto users

HMRC has released a fresh warning to cryptocurrency users, emphasizing the need to submit a tax return this month to evade possible penalties.

HMRC has heightened its scrutiny of cryptocurrency gains, recently issuing a fresh reminder on January 9th, 2024, to individuals who held cryptocurrency in the 2022/23 tax year. They’re urging a careful assessment of potential filing obligations for that period. Notably, failure to submit a self-assessment tax return by January 31st, 2024, could result in penalties and accrued interest on unpaid taxes.

This emphasis aligns with the launch of the Voluntary Disclosure facility in November 2023, particularly targeting cryptocurrency investors who might have undisclosed gains or income from previous tax periods related to their cryptocurrency investments

Who need to submit tax crypto tax return?

There might be individuals unaware of their filing obligation linked to holding cryptocurrencies, especially if there haven’t been direct receipts of money. It’s crucial to note that swapping one cryptocurrency for another is regarded as a taxable event, potentially resulting in a capital gain or loss.

• People who received, sold, exchanged or spend, giving away cryptocurrencies as gifts or charitable donations could potentially be liable for income tax or capital gains tax (CGT). These transactions should be reported in the self-assessment tax return due by January 31st, 2024.
• In the 2022/23 tax year, the annual exempt amount for capital gains stands at £12,300 (this will be reduced to £6000 and £3000 respectively for FY23-24 and FY24-25 tax year). If disposals during the year resulted in gains surpassing this threshold, it’s necessary to inform HMRC. The taxpayer is then responsible for paying any applicable CGT.
• If the cumulative proceeds from disposals during the tax year surpass £49,200, they need to be included in the self-assessment tax return. Depending on the volume and frequency of crypto transactions within the tax year, individuals could inadvertently cross these limits.
• When an individual receives cryptocurrencies from an employer. It could be categorized as employment earnings. Income tax and, if relevant, national insurance contributions are usually deducted using the PAYE (Pay As You Earn) system.
• Cryptocurrencies received for any service provided will be treated as self-employment income. This will be relevant for artists and designers participate in creation or mint of Non Fungible Assets (NFTs) or gamers participating in metaverse gaming .Income tax and, if relevant, national insurance contributions may be applicable.
• Other Cryptocurrencies income or rewards received (eg from mining, staking, liquidity pool, yielding, farming etc) may be treated as other taxable income and subject to income tax. 

HMRC’s Renewed focus on Cryptocurrency taxation

HMRC, the UK’s tax authority, has recently intensified its efforts and placed a renewed emphasis on ensuring compliance regarding cryptocurrency taxation. With the growing popularity and use of cryptocurrencies, HMRC is proactively focusing on ensuring that individuals and businesses involved in crypto transactions fulfil their tax obligations accurately and promptly.

This renewed focus includes providing clearer guidelines and reminders to crypto users about their tax responsibilities. HMRC aims to minimize tax avoidance and ensure that taxpayers understand their obligations when it comes to reporting crypto-related income, gains, or transactions.

The agency is working to enhance education and awareness among cryptocurrency users, emphasizing the importance of accurately reporting income and gains derived from crypto activities. This proactive approach aims to prevent potential tax evasion, promoting a fair and transparent tax system within the cryptocurrency space.

HMRC has released guidance regarding cryptocurrency taxation, offering a dedicated manual specifically addressing cryptocurrency tax regulations and providing extensive insights into its interpretation of these rules

HMRC’s renewed focus underscores the significance of staying updated with tax regulations and fulfilling tax obligations related to cryptocurrencies to avoid penalties and maintain compliance with the law.

DISCLAIMER

© My Accountancy Team 2023 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. My Accountancy Team Ltd t/a mycryptotax.co.uk, cannot be held responsible for the consequences of any action or the consequences of deciding not to act.