There are no specific tax rules dealing with crypto assets, but HMRC published its own internal crypto assets manual  in March 2021.  It is available in part online, (with parts telling officers what to look for before launching an investigation redacted.)

The manual tries to define what is a crypto asset.  Here is a stab: 

• exchange tokens (which are intended to be used as a means of payment and include crypto currencies such as bitcoin);
• utility tokens (which provide the holder with access to particular goods or services on a platform);
• stablecoins (which may be pegged to other assets considered to have a stable value such as US dollars or pounds sterling, or precious metals such as gold);
• security tokens (which provide the holder with particular rights or interests in a business, such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits).

The assumption that HMRC makes, is that the vast majority of individuals will hold crypto assets as a personal investment and therefore CGT is what HMRC are looking for.  However, as with trading income, if an individual takes part in frequent trading, any profits may instead be subject to UK income tax.

And as always the case, if you cannot prove what you put down on the tax return, then you are wide open to the HMRC sending you an invoice for what they think you should be paying.

CRYPTO AND THE REGULATIONS FOR TAX AND FCA

As the popularity of crypto currency increases (El Salvador becoming the first country to adopt a cryptocurrency, with others looking to follow) and Bitcoin hitting an all-time high, the area has become a rapidly growing focus area for HMRC.

HMRC’s latest ‘nudge letter’ campaign (letters sent to taxpayers saying essentially: “we know you have something, should you be reporting and paying tax?”) advises taxpayers who may have failed to pay tax on their crypto assets, to rectify the situation.  HMRC are armed with a wealth of data gathering information and just like the FCA they spend time trawling social media.  Investigations will follow from both HMRC and FCA into crypto investors and sellers.

In 2019, several crypto exchanges publicly acknowledged that HMRC had made requests for specific data about their users and transactions.   Nudge letters also indicate that FCA or HMRC have received third party sourced information.  As with the nudge letters sent by HMRC regarding offshore assets, or non-domiciles, taxpayers who receive a nudge letter, or who may be generally concerned about their tax position in respect of crypto assets, should take corrective action as soon as possible.  Nudge letters are never random, they are part of a planned, targeted campaign – and most IFAS will have received them in some form or other from FCA.