Cryptoassets and self assessment – issues for agents to consider

As the self assessment peak filing season begins, we look at some issues for agents to consider where clients may have cryptoasset transactions that need to be reported to HMRC.

Cryptoassets have moved rapidly from the margins of financial activity into the mainstream. Millions of UK taxpayers are now estimated to hold some form of cryptoasset. An earlier article reviewed the current UK tax position for cryptoassets and highlighted areas of complexity and uncertainty. Increasingly, agents need to discuss potential cryptoasset activities with their clients, when preparing self assessment returns. 

Identifying cryptoasset activities

HMRC already receives reports from UK-based exchanges about individuals’ cryptoasset activities and has used these to issue targeted ‘nudge’ letters to taxpayers where it believes they may not have reported their crypto income or gains. From 2027, exchanges of information under the Cryptoasset Reporting Framework mean that HMRC will also receive reports from participating jurisdictions about some UK taxpayer offshore activity. 

We understand that HMRC often finds that those involved in crypto transactions don’t appreciate that there are tax consequences. This could be because they:

• Mistakenly view cryptoassets as a type of currency, or money that has no tax consequences.
• Believe crypto-to-crypto transactions aren't disposals for Capital Gains Tax (CGT) purposes.
• Think income events such as mining, staking, airdrops and employment-related payments in cryptoassets, are exempt from Income Tax.
• Believe any income and gains from cryptoassets aren't taxable as long as they're not withdrawn from the cryptoasset exchange.

Beyond self assessment reporting requirements, there may also be a lack of awareness that cryptoassets are treated as assets for Inheritance Tax purposes and could need to be valued and declared as part of an estate.

Unless clients have already received an HMRC nudge, or receive one in future, lack of awareness about the tax consequences may mean that they don’t volunteer information about cryptoasset activities to their agent unless they are prompted.

Agents could consider asking clients specifically about any involvement with cryptoassets as part of their process for preparing self assessment returns.

Record keeping for cryptoasset transactions

Members have told us that there can be problems preparing accurate returns because information available from the crypto exchanges is frequently difficult to use and isn’t ‘tax ready’.

There will often be many transactions, sometimes across multiple exchanges. Translating the data from fragmented complex records into accurate tax reporting can be challenging. Activity across different exchanges can also present problems for CGT share pooling.

We understand that some taxpayers are using online tools to generate tax reports from the information provided by exchanges, but the quality may vary and outputs need to be checked. 

Agents should consider discussing record keeping with their clients. HMRC has provided some guidance on the records it expects taxpayers to keep when selling or receiving cryptoassets, as part of high level guidance on GOV.UK:

• Check if you need to pay tax when you sell cryptoassets
  This points out that some exchanges provide reports of transactions, but these are not tax calculations and won’t keep track of pooled costs – platform users should keep their own records. We understand that another common mistake HMRC see in practice is a failure to apply the CGT share pooling rules when calculating gains and losses on cryptoassets that are fungible, such as bitcoin.
• Check if you need to pay tax when you receive cryptoassets
  This discusses tokens from mining, staking, lending and liquidity pool arrangements. It also covers employment income paid through tokens. 

Other HMRC guidance and its cryptoasset disclosure facility

In addition to the GOV.UK guidance, HMRC has published detailed guidance in its Cryptoassets Manual, with sections dealing with individuals, businesses and decentralised finance.

Where clients have failed to report historic crypto transactions to HMRC, perhaps due to some of the mistaken assumptions outlined earlier, HMRC’s cryptoassets disclosure facility can be used. Agents can make disclosures on behalf of clients, where authorised to do so. 

Let us know what you think

We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work; email us to share your insights and feedback.