Love them or loathe them, cryptoassets are now a familiar form of investment. However, how they are taxed and how to report taxes due can be mystifying for most.
Is it trading? Is it capital gain? Is it gambling? The lines can be blurred, although these days we have a much better idea of how HMRC view most crypto based transactions.
But for many, holding cryptoassets is not a new thing, and the chances are that at some point in the past, there has been a transaction (or several hundred!) that may have slipped through the net and not been correctly reported to HMRC, or has not been reported at all.
HMRC is aware of this, and as with many previous hot topics, they are offering taxpayers the chance to get themselves up to date, pay their taxes, and move on without, at this stage, overly punitive penalties.
Who can use it?
Anyone who would usually pay income tax is eligible to use the Cryptoasset Disclosure Facility – i.e., this is aimed at Individuals, Trusts, Estates or Partnerships.
It can be used to report transactions in any crypto asset, including cryptocurrencies, utility tokens or NFTs, which should have been subject to UK taxes. This could be from UK or overseas-based sources.
If you have other sources of income and gains that need to be reported, this facility may not be for you – but there are others you may be able to choose from!
How does it work?
The Cryptoasset Disclosure Facility is an online tool that allows taxpayers to report the transaction to HMRC.
This particular facility is different from earlier HMRC campaigns, which often just asked for a summary of the tax due. This time, it allows for attachments to be uploaded as evidence of the transaction(s) that took place. This gives HMRC the chance to consider what has happened in full detail, hopefully avoiding prolonged back and forth discussions.
Even so, there will still be complex calculations to perform, which HMRC will expect to see. Given the complexities of the UK tax system, most taxpayers will need some support to prepare these calculations and to ensure that they will be acceptable to HMRC.
Why use the facility?
Importantly, the Cryptoasset Disclosure Facility will enable taxpayers to correct their own tax affairs before HMRC opens an enquiry – a prospect that does not thrill most people.
Where HMRC enquires into a taxpayer’s affairs, there will almost invariably be much higher penalties. In cases where a facility is offered which is not used, those penalties will often be higher still – for example, those who failed to use the Requirement To Correct facility in relation to overseas income and gains faced up to 200% penalties when the error was discovered by HMRC at a later date!
The facility will offer a simplified process for making a disclosure, again much less onerous than going through the process of an HMRC-initiated investigation.
Finally, this gives certainty. When it is done, it is done, with no need to worry about HMRC discovering an issue later.
Next Steps
If you believe you have current or past cryptoasset transactions that need to be reported to HMRC, please contact the Gravita Tax Consultancy team here. We will be happy to discuss your situation, advise on the best way forward, and guide you step by step throughout the process.
