'Tax Nudge' Letters Sent to Crypto Investors

HM Revenue & Customs plans to send crypto investors nudge letters warning them to check they have the paid the right tax. News of the letters, which have yet to be issued, was released by CryptoUK, a trade association, on Wednesday, accountants reported. HMRC told CryptoUK it was taking an “educational approach” in issuing the letters. It added its aim was to highlight areas “people may not be aware of when considering if they have to pay any tax”. If you receive a nudge letter it does not necessarily mean you have made an error on your tax return, but you need to ensure that you respond correctly to HMRC.

The letters will be used to encourage cryptocurrency investors to review whether they have paid the correct amount of capital gains tax (CGT) and in some cases, income tax, on their crypto holdings. Tax experts said the development was a sign of HMRC seeking to clamp down on possible evasion or avoidance by some crypto investors. It is likely that HMRC believes large amounts of CGT and income tax generated from cryptocurrency investments have been undeclared for tax purposes. In some cases, this could constitute criminal tax evasion. HMRC suspects that there is an increasing amount of hidden wealth thanks to the rise of cryptocurrencies.

Many retail investors in cryptocurrencies are under the misunderstanding that HMRC is unable to find out about their crypto investments and any gains they may have made. However, HMRC has used its information-gathering powers to demand lists of crypto investors from exchanges over the past couple of years.