Cryptoassets Gains/Losses

In November 2021, HMRC sent out ‘nudge’ letters to thousands of Cryptocurrency investors in the UK utilising data they had received from exchanges.

Nudge letters are designed to encourage taxable persons in the UK (Usually individuals and companies) to check their tax situation and ensure they have treated a specific facet of income correctly on their relevant tax returns. Typically, at some point in the future, HMRC then follow up on these nudge letters, and if they have reason to believe this income has been treated incorrectly by the taxpayer, they will issue further assessments and potentially penalties.

If you have been trading in Cryptocurrency then it is a good idea to check if you need to file an amended tax return. One of our specially trained tax experts at Tree can assist you with this.

Why were the Cryptocurrency nudge letters issued by HMRC?

The letters were issued because the ‘share matching’ rules that are used to calculate Cryptocurrency gains/losses were further clarified in HMRC legislation in November 2021. The biggest clarification made was that a ‘Crypto-for-Crypto’ exchange would be classed as a disposal (or a sale) for Capital Gains Tax purposes, even though no physical money has actually changed hands.

Up until November 2021, this was unclear, and the vast majority of taxpayers and accountants had assumed that unless physical money had changed hands, there would be no capital gain or loss on Cryptocurrency transactions. Usually a capital gain or loss is only made when an asset is sold for currency (as opposed to another Cryptocurrency), however for Cryptocurrency this is not the case.

HMRC therefore issued the nudge letters to ensure that taxpayers who had been trading in cryptocurrency had declared any ‘Crypto-for-Crypto’ transactions correctly.

What does this mean for you?

This means if you have been trading in cryptocurrency and you have only reported the gains/losses made when you have exchanged cryptocurrency for GBP (or another currency that is not Cryptocurrency), your tax return for that year is likely incorrect and will not be showing either the correct gain or loss for the year.

If HMRC deem this to be the case, as they have issued the nudge letters, they are likely to impose penalties on a number of individuals in the coming months.

Therefore, if you believe your return may have been filed incorrectly, please get in touch with one of the team today and we will assist you.