Her Majesty's Revenue and Customs (HMRC) has doubled down on efforts to hunt down cryptocurrency holders and traders who failed to pay taxes associated with their investments in the past few years.
Cryptocurrency investors appear to be top of HMRC’s tax evader watchlist, which has reportedly grown by 30% in the past year. Suspected tax evaders may have their tax records reviewed for up to five years.
While that may be quickly sorted in the traditional finance world, tracking cryptocurrency investments over a lengthy period is a daunting task given the multiple addresses and transactions which sometimes are outside an exchange. Still, not every UK-based exchange provides tax solutions or tools for analysing transactions.
A Reddit user who is undergoing such a strict tax compliance check from HMRC shared their experience. They are yet to reach conclusions with HMRC despite ‘recording most of the [crypto] disposals possible and providing calculations on my tax return.’
What Can HMRC Request For?
According to the individual who is unwilling to upload a copy of the letter for privacy reasons, HMRC is “now asking for the records provided by the exchanges AND all wallet analysis - with addresses” dating back to a few years ago.
These, as per the user, specifically include:
- Details of any crypto received via employment.
- Details of transactions missed in the original return - backed up by wallet analysis.
- Wallet addresses for crypto transactions.
- Exchange records in CSV format.
Given that it was only lately that comprehensive tax solutions for crypto investors became available, gathering such information is apparently an uphill task.
Meanwhile, if crypto holders are top of HMRC’s watchlist, then Coinbase users are apparently high on the list. The exchange confirmed last month that it shared with the HMRC data for users that transacted up to £5,000, and an affected Coinbase user made the Reddit report.
As we explained in our guide for UK investors who want to pay Bitcoin taxes, crypto tax obligations are now well addressed by HMRC, and attempting to evade them may only be detrimental in the long-run.
Instead, using an experienced crypto tax advisor may be a better bet and save investors from having to overpay on their returns.