HM Revenue & Customs is reported to be working alongside leading cryptocurrency exchange platforms to gather users’ details, in a bid to prompt investors to be mindful of the tax implications when dealing with cryptocurrency assets.
Investors can expect to receive ‘nudge’ letters from HM Revenue & Customs, reminding them to pay their taxes correctly.
William Je, founder of Himalaya Exchange, says: “It seems as though there is now a mounting pressure on investors. For UK tax purposes, crypto assets are usually subject to capital gains tax for individuals who hold them as personal investments on any profit realised.
“Investors also need to be aware that there are also instances if an individual is seen to be ‘trading’, ‘mining’ or as part of an employment remuneration package then any profit could be open to income tax. As with any asset if there has been no disposal of the cryptocurrencies there is not usually any tax due as you only pay taxes in the UK on realised profits.”
Je says business owners also need to be aware that receiving a cryptocurrency in payment for goods or services sold by the business also requires the business owner to bring the value of cryptocurrency into the sales/ turnover.
Je added: “We would argue that anyone investing in cryptocurrency needs to be careful when calculating the profits/losses arising from the disposal of cryptocurrencies. HMRC receives information from crypto exchanges and will pursue those who fail to report their profits correctly. Penalties for failure to report gains can be quite severe.”
According to Himalaya Exchange, however, investors may face some potentially difficult issues when it comes to reporting, with cryptocurrencies subject to major price volatility in the market which can result in significant gains or losses.
In addition, cryptocurrency exchanges may only keep records of transactions for a short period or the exchange may no longer be in existence when an individual comes to evaluate the position.
Furthermore, UK tax rules dictate that specific ordering rules apply to tokens purchased and sold within the same token across multiple wallets via a pooling method and tokens need to be converted into sterling at the time of each transaction and their market value ascertained.
Je’s warning of the complexities surrounding cryptocurrency investing comes as the FCA issued its own reminder to investors of the risks of investing in cryptoassets.
The FCA currently has no regulatory oversight over direct investments in cryptoassets and non—fungible tokens and warned investors that with no consumer protections in place, investors should be prepared to lose all of their investment.
The watchdog said those marketing cryptoassets should state that cryptoassets are not regulated by the FCA and should also make clear that investments are not protected by financial compensation schemes.