The world of digital assets, like Bitcoin and Ethereum, has been making waves in recent years. But along with the buzz and excitement, there’s also been confusion about how these assets are taxed. HMRC, the UK’s tax authority, is taking a closer look at crypto activities and encouraging people to come forward if they haven’t been paying the right taxes.
Why is HMRC focusing on crypto?
There are a few reasons why HMRC is paying more attention to crypto. First, there’s been a surge in people using cryptocurrencies to buy and sell goods and services. Second, new ways of earning income with crypto, like staking and mining, have emerged. And third, there have been some high-profile cases of fraud and scams involving crypto.
What taxes might apply to crypto?
The specific taxes you’ll need to pay will depend on how you’re using crypto. But here’s a quick rundown of some of the potential taxes:
- VAT: If you’re selling or exchanging crypto, you may need to pay VAT (Value Added Tax).
- Corporation tax: If you’re a business that invests in crypto, you may need to pay corporation tax on your profits.
- Income tax: If you’re earning income from crypto, like through staking or mining, you may need to pay income tax.
- Capital gains tax: If you’re selling crypto at a profit, you may need to pay capital gains tax.
What if I haven’t been paying the right taxes?
HMRC is encouraging people to come forward if they haven’t been paying the right taxes on their crypto activities. To help facilitate this, HMRC have recently launched a new voluntary disclosure facility that allows you to come clean and pay your outstanding taxes without facing penalties.
What is the voluntary disclosure facility?
The voluntary disclosure facility is designed to encourage people who have failed to pay tax on their crypto assets to come forward and settle their debts. The program is confidential, and it offers a number of benefits, including:
- Reduced penalties: If you come forward voluntarily, you’ll be charged lower penalties than you would if HMRC discovered your unpaid taxes on their own.
- Peace of mind: Knowing that you’re compliant with the law will give you peace of mind and prevent you from worrying about potential penalties and prosecution.
Who is eligible for the voluntary disclosure facility?
The voluntary disclosure facility is open to anyone who has failed to pay tax on their crypto assets, regardless of whether they did so intentionally or unintentionally. However, the facility is not available to people who have been convicted of a tax crime related to crypto assets.
What are the benefits of using the voluntary disclosure facility?
There are a number of benefits to using the voluntary disclosure facility, including:
- Reduced penalties: As mentioned above, you’ll be charged lower penalties if you come forward voluntarily.
- Peace of mind: Knowing that you’re compliant with the law will give you peace of mind.
- Avoiding prosecution: If you don’t come forward voluntarily, HMRC could prosecute you for tax evasion.
What are the risks of not using the voluntary disclosure facility?
If you don’t use the voluntary disclosure facility and HMRC discovers your unpaid taxes on their own, you could face:
- Higher penalties: You’ll be charged higher penalties than if you came forward voluntarily.
- Prosecution: HMRC could prosecute you for tax evasion.
Here are some additional tips for navigating the crypto tax maze:
- Keep detailed records of your crypto transactions. This includes the date of each transaction, the amount of crypto involved, and the value of the crypto at the time of the transaction.
- Stay up-to-date on the latest crypto tax news and regulations. The crypto tax landscape is constantly changing, so it’s important to stay up-to-date on the latest news and regulations.
How can I get help using the voluntary disclosure facility?
If you’re considering using the voluntary disclosure facility, you should seek professional advice from an accountant or tax specialist. They can help you understand the program, gather the necessary information, and complete the disclosure form.
Remember, it’s always better to pay the right taxes up front than to be hit with a big bill later. By taking the time to understand your crypto tax obligations, you can avoid unnecessary headaches and penalties.
