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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

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

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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IN A LARGELY uninspiring speech and, amidst declining inflation rates, the Chancellor’s Autumn Statement delivered some fairly unspectacular tax cuts.

In today’s Shipleys Tax note we give you a snapshot of what you need to know as an employer, self-employed or business.

National Insurance Takes Centre Stage

Following much vaunted speculation post-October’s inflation report, expectations were high for potential reductions in corporation tax, inheritance tax, and National Insurance (NI). The final decision primarily impacted NI, affecting both employees and self-employed individuals. However, the effective dates for these changes vary.

Employee NI Rate Cut from January 2024

Effective from 6 January 2024, the Primary Class 1 main NI rate will decrease from 12% to 10%. This alteration, reminiscent of the mid-year modifications in 2022/23, necessitates payroll software updates. It’s crucial for businesses to ensure these updates are implemented before processing January’s payroll. Note: The rate for earnings above the Upper Threshold remains at 2%.

Significant Changes for Self-Employed NI Contributions from April 2024

Starting 6 April 2024, Class 2 NI contributions, mandatory for the self-employed, will be abolished. Self-employed individuals with profits between £6,725 and £12,570 will maintain access to contributory benefits like the state pension through NI credits without paying contributions. Voluntary Class 2 payments remain an option.

Additionally, the main Class 4 NI rate will be reduced from 9% to 8%.

Extended NI Incentive for Hiring Veterans

The beneficial NI incentive for recruiting veterans is now extended until 2025.

Expansion of Cash Basis Accounting for Self-Employed Businesses

The Autumn Statement also brought some good news for self-employed businesses using cash basis accounting. The turnover limit for this accounting method has been removed. Previously, businesses had to switch to the accruals basis after exceeding £300,000 turnover

Business tax

• Capital allowances – permanent full expensing – Full expensing is now a permanent tax break for companies. The Spring Budget 2023 introduced two new temporary first-year allowances. For expenditure on plant or machinery incurred on or after 1‌‌‌ ‌‌April 2023 but before 1‌‌‌ ‌‌April 2026, companies can claim a 100% first-year allowance for main rate expenditure – known as “full expensing” – and a 50% first-year allowance for special rate expenditure. Today’s announcement makes full expensing and the 50% first-year allowance permanent by removing the expiry date of March‌‌‌ ‌‌2026.

• The two R&D reliefs (RDEC and the SME scheme) to merge from 1 April 2024 – A range of measures on tax reliefs have been announced including enhanced support for Research and Development (R&D) intensive small and medium-sized enterprises, an extension to the ‘sunset date’ for freeport tax reliefs and administrative changes to the creative industry tax reliefs.

• The EIS and VCT schemes are extended for another decade.

• The tax reliefs for Investment Zones and Freeports are extended to ten years.

More to follow.

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IN THE UK’s corporate realm, the concept of limited liability shields directors from personal accountability for company debts, including tax obligations. However, there are specific instances where HMRC can pierce this corporate veil, seeking recompense directly from directors.

In today’s Shipleys Tax note we outline these rare yet significant circumstances and the potential legislative defences that may be available to company directors.

The Principle of Limited Liability Status

Limited liability maintains a distinct legal separation between the company and its directors. Nevertheless, this shield is not impervious. There are certain situations, often involving serious misconduct or negligence, where directors can find themselves personally liable for the company’s unpaid taxes.

Where Might Directors Face Personal Liability?

Director’s Personal Guarantees

When a director provides a personal guarantee for a company’s debt, they pledge their own assets as security for the loan. This guarantee means that if the company cannot repay its debts, the director’s personal assets can be targeted to recover the amount owed. Similarly, if a director has an outstanding balance in their director’s loan account, which is not settled before the company enters insolvency, they may become personally liable to repay this debt.

Wrongful or Fraudulent Trading

Directors must act responsibly with regard to the company’s financial status. Under insolvency rules, if directors continue to trade when they know the company is insolvent, or if they incur debts without a reasonable prospect of the company being able to repay them, they can be held personally liable for wrongful trading.

Fraudulent trading goes a step further, where directors deliberately set out to defraud creditors. In such cases, the courts can hold directors personally responsible for the company’s debts, resulting in serious legal and financial repercussions.

Tax Evasion or Avoidance

Tax legislation gives HMRC additional powers to hold directors accountable for tax evasion or avoidance. If a director is found to have a history of corporate insolvency, particularly if insolvency has been used as a means to evade or avoid tax liabilities, HMRC can pursue them personally. This legislation aims to deter directors from using insolvency as a tax evasion strategy, ensuring that corporate tax liabilities are met.

Personal Liability Notices (PLNs)

HMRC uses Personal Liability Notices to hold directors personally liable for the non-payment of PAYE or National Insurance Contributions (NIC). These notices are issued when HMRC believes that the non-payment was a result of the director’s neglect or fraudulent behaviour. Once a PLN is issued, directors can face significant personal financial liabilities, which HMRC will actively seek to recover.

Possible Mitigating Factors

When facing action from HMRC for liabilities such as PAYE, NIC, VAT, or Corporation Tax (CT), directors can employ several defences to potentially mitigate or challenge personal liability:

1. Lack of Intent: Demonstrating that there was no intention to evade tax payments, that any underpayment was a result of genuine error or misinterpretation of complex tax laws, can be a defence. Evidence seeking clarification or rectifying mistakes as soon as they were discovered needs to be maintained.
2. Reliance on Professional Advice: reliance on the advice of competent tax advisors or accountants might provide a shield against liability. However, reliance on professional advice is not absolute and usually requires proof that the advice was professional, based on correct accurate information, and reasonable.
3. No Direct Involvement: A director may argue they were not involved in the day-to-day management of the company or in the financial decisions that led to the unpaid taxes. This could apply in situations where there is a clear division of responsibilities among multiple directors.
4. Procedural Errors by HMRC: If HMRC fail to follow proper procedures or meet certain legal requirements when issuing a Personal Liability Notice (PLN) or taking other actions, this may invalidate their claim.
5. Unforeseeable Circumstances: Events beyond the director’s control, such as sudden market changes, natural disasters, or other external shocks that impact the company’s ability to pay, might be used as a defence, especially if these events can be clearly shown to correlate with the period of non-payment.
6. Active Engagement with HMRC: Demonstrating that there was active engagement with HMRC regarding any payment issues, attempts to negotiate payment plans, or voluntary disclosures of potential underpayments can act in the director’s favour.
7. Economic Reality: In some cases, directors can argue that, despite their best efforts, the company was unable to meet its tax obligations due to economic conditions affecting the company’s liquidity.

It is crucial for directors to maintain accurate records and documentation to support these defences. They should engage with legal and tax professionals as soon as they are aware of potential tax liabilities or HMRC actions, to ensure their case is as strong as possible.

In conclusion, while the UK legislation primarily places the burden of unpaid taxes on the company, directors can be made personally liable in certain circumstances. If a director finds themselves facing a PLN or potential liabilities for unpaid taxes, it’s essential to seek advice from an tax expert or professional adviser.

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. For advice on tax matters, always consult with a qualified professional.

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