HMRC is ramping up its scrutiny on individuals who hold or trade cryptocurrencies. As digital currencies like Bitcoin and Ethereum gain popularity, HMRC’s scrutiny of tax compliance in this area also increases. The agency is actively pursuing those who fail to report crypto-related income or capital gains, issuing warnings, launching investigations, and even imposing penalties.
For crypto investors, traders, and businesses, understanding HMRC’s stance is crucial to avoid unexpected tax bills or legal repercussions. In this blog, we’ll explore HMRC’s approach to cryptocurrency taxation, the key obligations for UK taxpayers, and how to ensure compliance.
Why are these changes happening now?
This crackdown comes in response to booming crypto adoption in the UK—estimates suggest around 12% of UK adults (over six million) now hold some form of cryptocurrency. HMRC’s belief is that a sizeable portion of these holders haven’t fully met their tax obligations.
This move aligns with global efforts under the OECD’s Crypto‑Asset Reporting Framework, enabling HMRC to cross‑check platform data, self‑assessment returns, and even exchange records. For example, when exchanges report profits or disposals, HMRC can spot discrepancies and issue targeted “nudge” letters.
Understanding “Disposals” — It’s not just selling
A critical point: “disposal” in HMRC’s terms is broader than simply selling crypto for cash. It encompasses:
- Trading one crypto for another (e.g. Bitcoin for Ethereum)
- Using crypto to purchase goods or services
- Gifting crypto assets to someone besides a spouse or civil partner.
Even internal transfers between wallets or exchanges can count as disposals, triggering tax obligations.
What are the tax implications?
The UK tax rules for cryptocurrencies can be complex, but the key scenarios where tax may apply include:
1. Selling or exchanging crypto (Capital Gains Tax)
If you sell, trade, or spend cryptocurrency, you may be liable for Capital Gains Tax if your total gains exceed the annual CGT allowance (£3,000 for 2024/25). This includes:
- Selling crypto for GBP.
- Swapping one cryptocurrency for another (e.g., Bitcoin to Ethereum).
- Using crypto to purchase goods or services.
Example:
If you bought Bitcoin for £5,000 and later sold it for £15,000, your taxable gain is £10,000. After deducting the £3,000 CGT allowance, you’d pay tax on £7,000.
2. Earning crypto (Income Tax)
If you receive cryptocurrency as payment or through activities like mining or staking, it may be subject to Income Tax and National Insurance Contributions (NICs). This applies to:
- Crypto mining rewards (treated as income at their market value when received).
- Staking rewards (considered miscellaneous income).
- Salary or freelance payments in crypto (taxable as earnings).
3. Business transactions involving crypto
Businesses accepting crypto payments must account for them in GBP at the fair market value on the transaction date. VAT does not generally apply to crypto transactions, but other taxes (Corporation Tax, Income Tax) may still be due.
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HMRC’s “Nudge Letters”: A pre‑audit wake‑up call
Since mid‑2024, HMRC has been sending “nudge letters” to individuals it believes may have under-reported crypto gains. These letters urge recipients to:
- Review whether they’ve made taxable crypto disposals.
- Amend self‑assessment returns if necessary.
- Use HMRC’s disclosure service for unpaid taxes.
Failing to respond to such letters may result in assessments, penalties, and interest. Crucially, HMRC offers lower penalties for voluntary, unprompted disclosures—sometimes as low as 0%, compared to up to 100% in prompted cases.
What should crypto-holders do now?
1. Maintain detailed records
Track all crypto transactions carefully—dates, values in GBP at the time, fees, and reasons (e.g. swap, gift, purchase). HMRC emphasises that even off‑chain or internal platform transfers can necessitate records.
2. Check your position
Review whether gains exceed your £3,000 allowance. If so—or if you’ve engaged in crypto income activities—you should submit a self‑assessment return.
3. Consider a disclosure
If you suspect past non‑compliance, consider an unprompted voluntary disclosure via HMRC’s cryptoasset disclosure service. This helps reduce penalties significantly.
4. Stay ahead of 2026 reporting
Platforms will soon share your details directly. Be ready by ensuring all personal and tax details on file are accurate and up‑to‑date with HMRC.
5. Report accurately on your tax return
Self Assessment Tax Return: Declare crypto gains under the “Capital Gains Tax” section.
Income Tax Return: Report crypto earnings (mining, staking, etc.) as miscellaneous income.
6. Seek professional advice
Given the complexity of crypto taxation, consulting an accountant or tax specialist can prevent costly mistakes.
Risks of non‑compliance
Failure to comply can lead to:
- Penalties of up to £300 per supplier or user under the Cryptoasset Reporting Framework (CARF)
- CGT and Income Tax liabilities with added interest and late penalties
- HMRC assessments and audits—particularly after nudge letters are ignored
How can an accountant help?
Navigating the complexities of crypto taxation can be daunting, especially given the evolving nature of both the crypto market and tax regulations. This is where a qualified accountant with expertise in crypto assets becomes invaluable.
- Comprehensive record keeping: They’ll organise your transactions, convert values at disposal times, and assess CGT and Income Tax liabilities.
- Strategic planning: Advisers can optimise when and how disposals occur to reduce taxable gains—using strategies like tax‑year timing or loss‑harvesting.
- Accurate reporting: They ensure your self‑assessment is correctly completed and submitted, avoiding errors or missing disclosures.
- Disclosures & negotiations: If HMRC requests clarification or flags anomalies, professionals can act on your behalf, mitigating penalties and handling correspondence.
- Future compliance: With the CARF regime starting in 2026, advisers can help ensure your platform’s KYC and data alignment are correct, preventing inconvenient platform-level fines.
When HMRC’s nudge letters land, or if you feel uncertain, an experienced accountant can offer the confidence and clarity you need—often saving far more than their fees, by avoiding fines and extra tax.
Conclusion
HMRC is intensifying its oversight of crypto-assets—through data mandates, nudge letters, and hefty fines—backed by global reporting frameworks. With CGT allowances shrinking and the Income Tax potential on activity-based crypto widening, it is more important than ever for UK crypto holders to act.
Careful record-keeping and timely reporting can save you from future headaches, while early voluntary disclosure may afford low or no penalty in cases of past underreporting. For support and confidence, an accountant specialising in crypto tax can streamline compliance, protect you from costly errors, and prepare your accounts for imminent regulations.
In a rapidly evolving environment, taking the right steps now will not only help you sleep better but will put you ahead of the curve when HMRC’s new rules come into force. At Bradleys, we offer trusted advice to help you meet tax obligations and manage your finances with confidence.
