HMRC’s new Cryptoasset disclosure service – what it means for you
IN THE FAST-moving landscape of digital finance, HMRC has taken a significant step by issuing new guidance for individual to voluntarily disclose unpaid taxes on income or gains derived from cryptoassets. This development is crucial for taxpayers in the UK as it has significant implications for those not self-declaring any potential tax due on cryptoassets.
In today’s Shipleys Tax brief we look at HMRC’s new voluntary disclosure service for cryptoassets and why it’s important for taxpayers to consider their crypto tax affairs as timely disclosure can mitigate penalties and interest.
What is the new HMRC voluntary disclosure service?
Much like other voluntary disclosure campaigns (such as the Liechtenstein Disclosure Facility (LDF) and the Buy-to-Let campaign) HMRC’s new voluntary disclosure service for cryptoassets is designed to encourage taxpayers to come forward and disclose any unpaid tax on cryptoassets, providing an opportunity to settle their affairs while potentially facing lower penalties than if the underpayment were discovered by HMRC. It underlines the importance of being proactive in “fessing up” and looks to offer taxpayers more favourable terms compared to regular HMRC investigations.
Key Aspects of the Disclosure Service
- What cryptoassets are covered? The voluntary disclosure service covers a range of cryptoassets for tax purposes, which typically includes exchange tokens like Bitcoin, utility tokens, and non-fungible tokens (NFTs). This encompasses assets used as a means of exchange, for investment, to access particular goods or services, or those representing ownership of a unique asset or content.
- Reasons for Underpayment: HMRC categorises underpayment reasons into three distinct sections:
- Innocent Error: This implies that reasonable care was taken, but an error still occurred. In such cases, the look-back period for underpayment is limited to four years.
- Carelessness: If underpayment is due to carelessness, the look-back period extends to six years.
- Deliberate Behaviour: This is the most serious category, involving intentional underpayment, and can lead to a maximum look-back period of 20 years.
Much like other voluntary disclosure campaigns… HMRC’s new voluntary disclosure service is designed to encourage taxpayers to come forward and disclose any unpaid tax on cryptoassets
- Penalties and Reductions: In HMRC’s framework, penalties for inaccuracies in tax returns and failure to notify can be reduced depending on the quality of disclosure. If taxpayers proactively disclose with a high level of transparency and detail, they may be eligible for reduced penalties. The reduction is based on the principle of how much assistance the taxpayer provides to HMRC: telling them about the error, helping HMRC understand the disclosure, and giving access to additional information if required. The more forthcoming and cooperative the taxpayer is, the greater the potential reduction in penalties.
- White Space Notes: A crucial recommendation by HMRC is the inclusion of “white space notes” in disclosures (i.e. in their personal tax returns pages). These notes should detail the taxpayer’s reasoning and calculations, providing transparency in their self-assessment process.
- Payment Procedures: Lastly, HMRC has introduced comprehensive information on how and when to pay the owed taxes, simplifying the payment process for taxpayers.
Why This Matters for Taxpayers
Understanding HMRC’s new guidance is critical for individuals dealing in cryptoassets to ensure compliance before errors are discovered by the authorities. The advantages include potentially reduced penalties for disclosure, and the opportunity to rectify one’s tax affairs voluntarily.
However, it also implies increased scrutiny and a possible signal of stricter enforcement moving forward. Taxpayers must weigh the immediate costs of disclosure against the risk of higher penalties and interest if discrepancies are found later by HMRC. The service highlights the increasing focus on cryptoassets by HMRC and the importance for taxpayers to stay abreast of their obligations and take professional advice.
How Can We Help?
As a premier UK tax advisory firm, we specialize in guiding clients through the intricacies of tax laws, especially in emerging areas like cryptoassets. Our expertise lies in:
- Assisting in accurate self-declaration based on HMRC’s categories.
- Advising on potential penalties and how to minimize them.
- Helping clients understand the implications of their crypto transactions on their tax liabilities.
Understanding HMRC’s new guidance is critical for individuals dealing in cryptoassets to ensure compliance before errors are discovered by the authorities
Conclusion
HMRC’s new guidance on voluntarily disclosing unpaid tax on cryptoassets marks a significant step towards clearer tax compliance in the digital age. For individuals engaged in crypto transactions, it is essential to understand these guidelines and consider seeking professional advice to navigate this complex area.
Although the process offers an opportunity to correct past oversights with potentially reduced penalties, the complexity of disclosure and the evolving tax landscape for cryptoassets demand professional guidance to navigate effectively. Individuals are encouraged to assess their circumstances, utilise the service if necessary, and seek expert advice to optimise their tax position.
For further assistance or queries, please call 0114 272 4984 or email info@shipleystax.com.
Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.
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