Letter from HMRC regarding Cryptocurrency – What should I do?

Have you received a letter from HMRC encouraging you to consider your capital gains tax position for the cryptoassets you hold, whether it be BitCoin, Ethereum or Ripple? Or are you unsure about the tax treatment of these assets and how to declare these transactions on your tax return?

HMRC has recently sent nudge letters to taxpayers that it has identified as holding cryptoassets, better known as cryptocurrency. The purpose of this letter to encourage investors to ensure they have paid the correct amount of income tax and capital gains tax (CGT) on any income you have received from received from cryptoassets holdings.

What to do if you’ve received a letter

If you receive a letter from HMRC about Cryptocurrency, it doesn’t necessarily mean you have made an error on your tax return. However, you should not ignore the letter and should seek professional advice before returning any information as this could lead to an investigation into your tax affairs and potentially, financial penalties.

We have helped many clients who have received such nudge letters from HMRC and have assisted in analysing the tax situation of their cryptoassets which has meant we’ve been able to resolve the queries with HMRC quickly. 

Where are my Cryptoassets held?

In its cryptoassets manual at CRYPT22600, HMRC considers that the physical place where the asset belongs for taxation purposes will depend on whether it is simply a digital representation of an underlying asset. If it is, then the location of the underlying asset will determine the location of the cryptoasset and the tax jurisdiction that would apply.

Where the cryptoasset is distinct from any underlying asset, it is HMRC’s view that the exchange tokens are a new type of intangible asset (different to other types of intangible assets such as shares), they have an economic value, and the location of the asset will be dependent on the location of the residency of the beneficial owner. 

How are Cryptocurrencies taxed in the UK?

HMRC expect every UK resident individual to pay tax on the disposal of such assets, subject to the usual annual allowances and costs that may be deducted of course.   

Depending on the nature of your trading, the volume of transactions you undertake and the other sources of income you have, you will either be taxed as an investor or a trader, but as the rules are complex, you should always discuss your individual situation with one of our experts to ensure that you are accounting for your income correctly. 

How can we help?

Call Accountants for Traders on 01474 853 856 or email enquiries@accountantsfortraders.co.uk if you have received a letter from HMRC about cryptocurrency or if you need assistance in completing your tax return for HMRC.


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