HMRC’s latest ‘nudge letter’ on crypto asset disposals

What is in the nudge letter?

HMRC has previously sent nudge letters to remind individuals who held crypto assets, including cryptocurrency, of their obligation to report transactions, but the current communication goes a step further.

Crypto exchanges have been reporting user information to HMRC, meaning HMRC now has specific information relating to taxpayers who have made a disposal, which it has compared to their tax filings or lack thereof. Therefore, if you receive a nudge letter it means HMRC has a specific concern that an insufficiency of tax has been paid, based on information it has received.

A disposal is not only when a crypto asset is sold for fiat currency, but also when a crypto asset is given away under certain circumstances, used to buy goods or services, or purchased using another crypto asset. For example, if an individual bought Ethereum using Bitcoin, a disposal of Bitcoin would have been made and the gain on disposal would need to be calculated. Many are therefore likely to have a tax liability that they may not have been aware of at the time of the transaction(s). We have previously written about the tax consequences of crypto trading, which can be found here.

When is this happening?

In August 2024, HMRC began issuing nudge letters to those it holds information on, with a much larger number of letters expected to be issued from September onwards.

What happens if I am affected?

If you receive a nudge letter from HMRC, the letter will recommend amending your tax return, where possible, as well as making a disclosure for previous tax years. Interestingly, HMRC now has a dedicated disclosure service for cryptoassets, which shows it is expecting this to be a prevalent issue. The letter also states HMRC may raise an assessment for additional tax due, which we expect to happen in instances where the nudge letter is not responded to or no action is taken. An assessment is a formal charge to tax issued by HMRC which becomes final and payable if the assessment is not appealed within 30 days.

If you have made investments or have traded in cryptoassets, we strongly recommend you review your affairs. If you have made relevant disposals, or are unsure whether transactions would be considered a disposal for tax purposes, we recommend you seek professional advice, in order to protect your position.

It’s worth noting, these nudge letters specifically refer to penalties that may be charged, should additional tax be due. Approaching HMRC and making a voluntary disclosure before any letter is received is strongly recommended, as such a disclosure would be considered unprompted. Unprompted disclosures will benefit from access to the lowest possible penalties, in some cases as low as 0%, compared to disclosures that are prompted by an action of HMRC.

At haysmacintyre, we have a deep understanding of crypto transactions and HMRC’s approach to taxation, and we have a proven track record in guiding our clients through challenging situations and obtaining the most favourable outcome possible. If you have received a letter from HMRC or have any concerns over your crypto transactions please contact Danielle Ford, Head of Tax Disputes and Resolutions, or Riocard Hoye, Senior Manager.