Crypto traders face more tax probes from HMRC

HMRC has increased its efforts against cryptocurrency investors as the crypto market has seen a huge surge in prices over the last year. Bitcoin has gone up by more than 150% in the past year. Crypto investors might get a letter from HMRC requesting them to submit documents that show their crypto transactions and earnings from their crypto assets.

HMRC is intensifying its crackdown on cryptocurrencies as it opens more tax investigations into crypto investors

HMRC has been sending letters to individuals to notify them that they are being probed for tax evasion.

The letters ask crypto investors to provide information on how they finance their crypto activities, how they calculate their taxable income and capital gains from their crypto profits, and how they report their losses for tax purposes.

Crypto investors who get a letter are required to submit documents to HMRC that show their crypto transactions and earnings from their crypto assets.

HMRC has given taxpayers only a month to comply, which has created a lot of pressure and worry for them.

The tax rules on cryptocurrencies are not easy to understand, especially for individuals who do not have professional guidance.

If an investor frequently trades cryptocurrency, HMRC may treat that individual as a trader. This would mean they would have to pay income tax instead of capital gains tax, which would significantly increase their tax liability. However, there is no clear-cut criterion for what level of trading makes a taxpayer a trader.

Crypto investors need to be very cautious not to mislead HMRC into thinking that they are traders.

HMRC’s battle against crypto tax avoidance has gone up a notch.

It can be very tricky to reply to an enquiry letter from HMRC. Anyone who has received one of these letters has to be very precise and careful in how they answer. Making a mistake can have very costly consequences.

The tax rules for cryptocurrency are prone to confusion. This means that there is a risk that a taxpayer could unintentionally give HMRC the impression that they are professional traders and expose them to income tax.

Anyone who receives one of these letters should really seek professional advice before responding.

HMRC has increased its efforts against cryptocurrency investors as the crypto market has seen a huge surge in prices over the last year. Bitcoin has gone up by more than 150% in the past year.

The tax authority is also eager to tap into crypto as a source of tax revenue as 4.9 million people in the UK owned some cryptocurrency as of 2022, according to the Financial Conduct Authority.