Bitcoin investors are increasingly asking: Does HMRC look at Cryptocurrency?
The answer is Yes. HMRC will look at holdings of cryptocurrency from taxpayers it suspects of tax evasion and avoidance.
With the recent surge in interest and value in cryptocurrencies, HMRC’s “statement of assets” form (used to demand a complete accounting of all a taxpayer’s assets in an investigation) will now include explicit demands for information on cryptos and other assets commonly used by organised crime.
The information that will demanded will include details on cryptoassets such as Bitcoin and Ethereum, assets in E-money wallets like PayPal and assets in “value transfer” systems such as Black Market Pesos, a system allegedly used by Mexican and Colombian drug cartels, Hundi, an Indian system of credit notes and Fei ch’ien, a trust-based money transfer system commonly used in China’s shadow financial system.
Those who are found to have concealed assets from HMRC can expect to be prosecuted. This new demand for data on these assets is an attempt by HMRC to get to grips with the problem.
The news from HMRC comes after NatWest, the UK retail bank, announced in April 2021 that it will not engage with business customers who accept payment in bitcoin or other cryptocurrencies. HSBC has also confirmed that it will not allow transfers from digital wallets or enable customers to buy shares in companies associated with cryptocurrencies, such as Coinbase or MicroStrategy.
Both banks states that cryptocurrencies are high risk and therefore justify a cautious approach, though they note that their stance could change when regulation evolves.
The initial cryptocurrency guidance was released back in 2018 after a special report was submitted by the Cryptoassets Taskforce which was an initiative launched by the HMRC in collaboration with the Financial Conduct Authority (FCA) and Bank of England.
HMRC views cryptocurrency as a digital currency and when it comes to taxation, HMRC treats it as an asset. This means that disposal of crypto is subject to capital gains tax.
In 2019 HMRC published new guidance on business tax and cryptocurrencies.