Disclosure of cryptoasset income & gains

HMRC is inviting taxpayers to make a voluntary disclosure of Income Tax or Capital Gains from cryptoassets. It is publicising two options for disclosure: the digital disclosure service for those who have been careless in their tax affairs or the contractual disclosure facility for those who want to admit tax fraud and want to avoid criminal sanctions.

Cryptoassets include exchange tokens, e.g. bitcoin, NFTs (non-fungible tokens) and utility tokens. Most individual investors will be subject to Capital Gains Tax (CGT) on gains and losses on cryptoassets.

Disclosure for tax purposes is often highly complex as Section 104 pooling applies, subject to the 30-day rule for 'bed and breakfasting'. Alternatively, if you have been actively mining cryptoassets this is likely to be trading for tax purposes. In that case, the Trading Allowance can be claimed.

For CGT purposes, a capital loss may be claimed if a cryptoasset becomes of negligible value. 

Exchange tokens such as 'Bitcoin' are located for tax purposes wherever the beneficial owner is resident.  

HMRC has set up a Cryptoasset Disclosure Service to allow voluntary disclosure in relation to Cryptoassets

Taxpayers can also use existing disclosure facilities to get their tax position up to date:

The Digital Disclosure Service: general disclosures to disclose errors you’ve made:

• Despite taking reasonable care to make sure you paid the right amount of tax.
• Through carelessness.
• Through deliberate actions.

The Contractual Disclosure Facility: to avoid prosecution for fraud. If you want to make a disclosure because your deliberate behaviour has caused a loss to HMRC of any of the taxes, duties, levies or payments it administers. 

Deliberate behaviour is when you knew you owed tax but chose not to tell HMRC, or if you knew the figures on your tax return were wrong when you submitted it. HMRC may go back up to 20 years if it opens an enquiry on the basis that a taxpayer deliberately concealed their income or gains.

If you enter into the contractual disclosure facility contract and make a complete and accurate disclosure of all your deliberate behaviour which brought about the loss, HMRC will not open a criminal investigation into your disclosure. The contractual disclosure facility is the only way to make a disclosure that gives this assurance.

Disclosures made using the digital disclosure service can be for four to six years and the number of years disclosed depends on your behaviour, see Time limits for tax assessments, claims and refunds. 

Taxpayers are expected to settle their outstanding liabilities within 30 days, however, a time-to-pay agreement can likely be reached.

The Society of Trust and Estate Practitioners (STEP) suggest that the launch of the new voluntary disclosure facility may be linked to the recent announcement that the UK is joining the Crypto-Asset Reporting Framework (CARF), an Organisation for Economic Co-operation and Development (OECD) transparency standard agreed between multiple jurisdictions in March 2023. This will allow the automatic exchange of information on crypto exchanges between financial authorities including the details of taxpayers who use crypto exchanges.

Back to Nichola's Weekly Tax-Update 7 November 2023

Useful guides on this topic

How are Cryptoassets taxed in the UK? At a glance
How do you tax Bitcoin? Are cryptocurrency or cryptoasset gains or profits, taxable? Can you obtain tax relief if you make losses on Bitcoin? 

Cryptoassets: How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?
How do you tax Bitcoin? Are cryptocurrency or cryptoasset gains or profits, taxable? Can you obtain tax relief if you make losses on Bitcoin? Gains on transactions in cryptoassets are potentially taxable in the same way as other investments. 

Time limits for tax assessments, claims and refunds
What are the time limits for claiming a tax refund? How far can HMRC go back and raise an assessment? How many years back can a taxpayer appeal? What are the time limits for correcting a tax return?

External links

Tell HMRC about unpaid tax on cryptoassets

How to make a voluntary disclosure