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Addressing Unpaid Tax on Cryptoassets in the UK: A Comprehensive Guide

The rise of cryptocurrencies has introduced a new dimension to taxation, with individuals and businesses seeking clarity on their obligations. For those who may have inadvertently or intentionally failed to declare their crypto-related income or gains, understanding the implications and potential remedies is crucial.

Identifying Potential Tax Liabilities

Cryptocurrency transactions can trigger tax liabilities in various scenarios, including:

  1. Mining: Individuals who mine cryptocurrencies, earning rewards for validating transactions on the blockchain, are liable to tax on their mining proceeds.
  2. Trading: Profits from buying and selling cryptocurrencies are considered capital gains and must be declared in accordance with UK tax rules.
  3. Staking: Rewards received for staking cryptocurrencies, a process of locking up tokens to support the network’s operations, are taxable as income.
  4. Gifting or Receiving Cryptoassets: The transfer of cryptocurrencies may trigger capital gains or gifts tax depending on the circumstances.

Reporting Unpaid Tax on Cryptoassets

If you suspect that you have unpaid tax liability related to cryptocurrencies, it is essential to take proactive steps to address the situation. The first step involves assessing the extent of non-reported income or gains. Gather documentation, such as transaction records, exchange statements, and any other relevant evidence, to support your calculations.

Once you have a clear understanding of your unpaid tax, you must make a disclosure to HMRC. This can be done through the “Tell HMRC about unpaid tax from previous years” service. The disclosure should include details of the unreported income or gains, the relevant dates, and any supporting documentation.

Voluntary Disclosure: A Favourable Approach

Making a voluntary disclosure to HMRC can be beneficial in several ways:

  1. Reduced Penalties: HMRC generally applies lower penalties for voluntary disclosures compared to cases where non-compliance is uncovered through investigations.
  2. Improved Cooperation: HMRC may be more inclined to consider the disclosure with leniency if it is made promptly and with transparency.
  3. Peace of Mind: By resolving the matter proactively, you can avoid the stress and potential legal consequences of ongoing non-compliance.

Timely Payment and Interest Calculations

Along with making the disclosure, it is crucial to make the full payment of outstanding tax within 30 days of the disclosure. HMRC will provide a payment reference number to facilitate the transaction. Failure to make the payment within the deadline may result in additional interest charges.

HMRC calculates interest on unpaid tax from the date the tax should have been paid. The interest rate is reviewed annually and is currently set at 2.75% above the Bank of England base rate.

Seeking Professional Assistance

Navigating tax matters related to cryptocurrencies can be complex, and seeking professional assistance may be advisable. Richardson Lissack can provide guidance on your specific circumstances and assist you in making a voluntary disclosure to HMRC.

Conclusion

The UK tax system has evolved to address the growing significance of cryptocurrencies. Individuals and businesses involved in cryptoassets have a responsibility to comply with tax regulations. By understanding their tax obligations, proactively addressing unpaid tax, and seeking professional assistance when necessary, cryptocurrency users can maintain tax compliance and minimise potential penalties.

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