HMRC's Latest Crypto Nudge Letters are not to be ignored: What You Need to Know

HMRC is sending out a new round of "nudge" letters about cryptoasset transactions. If you get one, don't panic, but definitely don't ignore it either! It's crucial that you understand their significance if you receive one. This is the third round of “nudge” letters from HMRC and this one is taking a far more serious tone than the prior “educational” ones, which did not require a reply. Here is an overview of what you need to know.

The tone of the letters

HMRC has identified individuals who they believe may have incorrectly reported or omitted cryptocurrency transactions from their tax returns. These letters are their way of saying, "We have information about your crypto activities, but we are not sure you have reported everything." Unlike previous crypto “nudge” letters, these have a more serious tone, implying that HMRC will open an investigation into your tax return if you do not provide evidence that there is nothing to declare within 60 days. This confirms their increased focus on crypto tax compliance.

What to do if you receive a crypto nudge letter

1. Don't ignore it! HMRC insist you must reply within 60 days to provide evidence there is no tax to pay on your cryptoassets.
2. Check your records: Determine if you've accurately reported all taxable events related to your cryptocurrency activities. Using a crypto tax calculator like our recommended partner Recap.io is an essential first step to working out your tax position. We can help you produce the tax reports and review their accuracy before you declare the figures to HMRC.
3. Seek advice: If you are unsure about your tax position, know you have missed something or don’t know how to respond, it's time to get professional help. As well as specialising in crypto tax for 6 years, we have also been steering clients strategically through voluntary disclosures and HMRC investigations and can ensure you are taking the best approach.
4. Respond Promptly: While technically voluntary, responding to the letter is highly recommended to potentially avoid a formal investigation which can be costly and time consuming.
5. Consider Disclosure: If you identify any omissions or errors in your previous filings, consider making a disclosure to HMRC of the underpaid tax. We can advise on the best way of doing this to suit your circumstances.

Important things to remember:

• Technically, you don't have to respond to this letter - it's not a formal investigation (yet). But ignoring it could lead to one.
• Calculating crypto taxes can be tricky. If you're not 100% sure about your reporting, it's worth getting an expert to look it over.
• Professional guidance can be invaluable in navigating this process and potentially minimising the tax and any penalties.
• If you do need to make changes, it's better to come forward now. It could help you avoid bigger penalties later.

Declare to HMRC now, BEFORE you receive a “nudge” letter

If you are contacted by HMRC before you have notified them you intend to make a voluntary disclosure, you are likely to be liable for “prompted disclosure” penalties, which are at least 15%, versus potentially Nil penalties where an “unprompted” disclosure is made.

In light of this, it is now even more important to get your tax affairs in order quickly. We recommend notifying HMRC of your intent to make a voluntary disclosure as soon as you find there is an omission from prior years, with the hope of minimising penalties.  It is important to do this with professional tax advice and support.

A final point

These letters show that HMRC is getting serious about crypto taxes. If you receive one, take it as a prompt to double-check your crypto tax situation. It seems clear these letters are targeted at individuals they strongly suspect have crypto activity to declare. If you are in doubt, do not hesitate to seek professional advice. It is always better to address these issues head-on rather than waiting for HMRC to come knocking!

Remember, staying compliant with your cryptocurrency tax obligations is an essential part of responsible investing. If you have any doubts or concerns, we are here to help.

Get in touch with our crypto team if you want to discuss how we can support you with this.