On 30 March 2021 HMRC published its “Cryptoassets Manual”. This has the aim of helping “people understand the tax implications that can arise from transactions involving cryptoassets”. It is important to understand that this manual is guidance only and not law, and HMRC’s policy could therefore change over time.
The Manual starts by providing a helpful description of “cryptoassets” and other related technological concepts such a “Distributed Ledger Technology” and “Public and private keys”, before outlining which taxes apply for both individuals and businesses.
The publication of the Manual comes against the backdrop of two events: primarily, the recent exponential rise of Bitcoin since November 2020, and secondarily evidence of HMRC’s use of investigative powers to gather information against individuals who hold cryptoassets at exchanges and ensure that they properly report transactions that are subject to tax.
Undoubtably, given the recent large rise in prices, and accompanying taxable gains, HMRC will continue to keep a keen eye on both individual and business gains, and their appropriate tax reporting, through further information gathering going forwards.
Exponential Rise and Gains
As those of you who follow this space will appreciate, the price of Bitcoin (and other cryptoassets) has risen significantly since the end of last year. Although the price is only correct at the time of reporting, Bitcoin reached an all-time high of USD$64,800 on Wednesday 14 April 2021 before falling back to around USD$52,000 the following weekend. This is up from a price of around USD$13,000 in November 2020. It should be noted that as of today (23 April 2021) the Bitcoin price is around USD$49,000. This comes in light of news that President Joe Biden was proposing to almost double the capital-gains-tax for the wealthy.
As such, individuals and businesses will therefore be sitting on significant gains, whether made through price increases or trading activities, or a combination of both.
HMRC information gathering
In light of this it is worth noting that the Cryptoasset Manual, under Section CRYPTO100300 – Compliance: information powers notes that HMRC can make information requests from crypto-exchanges (where individuals and business can buy, sell and hold cryptoassets) under the powers conferred by schedule 23 to the Finance Act 2011 or schedule 36 to the Finance Act 2008. There are also additional routes including through the General Data Protection Regulation, Mutual Legal Assistance Treaty, European Investigation Order and Production Order.
The Mutual Legal Assistance and European Investigation Order route will potentially enable HMRC to obtain information from entities located overseas.
HMRC seeking data from crypto exchanges is not new. It was reported back in August 2019 that crypto-exchanges that do business in the UK, including Coinbase, eToro and CEX.IO had received letters from HMRC requesting customer data and transaction histories.
More recently, and in October 2020, HMRC confirmed to The Block (an independent news and research company focusing on digital assets) that it sought customer information from Coinbase UK. A spokesperson for HMRC went on record telling the Block that “We want to help people get their tax affairs right and believe that taxpayers want to get it right […]. HMRC regularly gathers data from a range of information sources using powers provided by Parliament. Data collected by HMRC is used to improve the integrity of the tax system and to identify those that have failed to declare their gains”.
This request was in fact quite narrow. A spokesperson for Coinbase confirmed the development, stating that “These requests are commonplace for financial services companies. Through a series of constructive conversations with HMRC, we agreed upon a more limited and focused disclosure, eventually narrowing it down to customers with a U.K. address who received more that £5,000 worth of cryto assets in their Coinbase account during the tax year of 2019/20”.
Tax advice and tax investigations
In light of the fact that there will be individuals and businesses who have made significant gains during the last six months (and indeed further back), HMRC will undoubtedly continue to make use of the wide range of information powers to gather information from this jurisdiction and beyond. Therefore, if you hold cryptoassets through an exchange, it is very likely that HMRC will have received information regarding those holdings (or if not already, at some point in the future).
If you are in the fortunate position of sitting on significant gains and require guidance on the tax position, then Gherson is able to offer expert specialist tax advice.
In addition, if you have been approached by HMRC, or if you feel an approach to HMRC is necessary, then Gherson’s specialist tax team alongside their white collar-crime and investigations team can provide guidance on the best response or approach.
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.
Solicitor in our White Collar Crime Defence Team