Syed Rahman outlines the stance taken by the tax authority regarding exchanges and traders
UK holders of cryptocurrency will have to disclose personal details to digital asset platforms as part of an attempt by HM Revenue & Customs (HMRC) to tackle tax avoidance.
Crypto exchanges and marketplaces will, from 1 January next year, have to collect information on users and transactions and pass this to HMRC. The move is part of an effort being coordinated around the world to enhance tax transparency in the digital economy.
HMRC’s rules will apply to all individuals and businesses that buy and sell crypto assets. They come after the tax authority took similar action to tackle tax avoidance by those using online sales sites such as Etsy and Airbnb.
Under the rules, individuals will have to supply their name, date of birth, home address, country of residence, and – if they are UK based – their National Insurance number or Unique Taxpayer Reference (UTR). Overseas investors will need to provide their tax identification number and state the country that issued it. Businesses will have to submit their legal name, registered address and relevant company registration or tax identification details.
Crypto platforms will need to report the value and type of each transaction, and the number of crypto units involved. Those that fail to comply face will face fines of up to £300 per user.
New era
For both HMRC and the crypto sector, this represents a new era. HMRC is placing those involved in the sector under more scrutiny than ever before.
The identity of crypto participants and the precise nature of their participation will be known to HMRC, which will be able to assess just how much tax it should be receiving from those activities. It will be able to cross-reference such data with someone’s tax self-assessment and take the necessary action if the two do not match up.
The HMRC’s course of action is part of the Crypto-Asset Reporting Framework (CARF), which is a global scheme led by the Organisation for Economic Co-operation and Development (OECD) that aims to improve reporting standards and close tax loopholes in digital markets.
With the Financial Conduct Authority (FCA) estimating that about 12% of UK adults hold some form of cryptocurrency, the HMRC’s new rules reflect moves in both the UK and European Union to make crypto assets subject to stricter supervision. From the UK government’s point of view, this is likely to mean more tax revenue. While this shouldn’t have a major effect on the crypto industry, it will have implications for those looking to dodge tax on any gains they make through it.
