Experts said plans by the UK Treasury to update rules for taxing cryptocurrencies should clear the confusion for taxpayers and give the government more insight into cryptocurrency holders.
As part of Wednesday's spring budget announcement, the Treasury said it was changing the rules for cryptocurrencies in the self-assessment (SA) system that UK taxpayers can use to file their tax returns. The change requires all amounts associated with cryptocurrencies to be listed separately.
Cryptocurrency is already taxed in the UK. This usually takes the form of a capital gains tax (CGT) on profits made from selling tokens, while profits from mining and holding cryptocurrencies are treated as income. This will be reported together with the proceeds from the sale of other assets, such as property and shares, via the SA form, which will be sent to HM Revenue, Revenue and Customs (HMRC).
By separating cryptocurrencies from how users self-assess their taxes, the government said it hopes to raise £10m ($12.1m) a year once rules are approved for the 2024-2025 fiscal year .
The UK Revenue Agency is updating its cryptocurrency tax guidance to include participation.
Mike Hodges, a partner at accounting firm Saffery Champness, said the move could help remind taxpayers to "consider the tax situation of their cryptocurrency holdings if they haven't already, and help avoid unnecessary confusion."
Hodges also noted that the move coincides with a minimization of taxpayers having to pay CGT to £3,000 from £12,300 in the 2024-25 tax year.
“The move may be partly due to an expectation that more taxpayers will be required to complete capital gains pages on their cryptocurrency earnings, where previously their earnings could have been covered by the more generous £12,300 exemption they previously enjoyed . " He said…
Dion Seymour, who previously worked on crypto assets policy at HMRC and is now CTO of cryptocurrencies and digital assets at tax consultancy Andersen LLP, said the change would give HMRC a better understanding of who owns and trades cryptocurrencies .
“The changes to the SA model, where income from cryptocurrencies must be reported separately, will provide HMRC with more transparency on who reports their income,” he said.
While the measure doesn't create new obligations, Seymour agreed the policy could help remind eligible taxpayers when to report cryptocurrency earnings.
“HMRC market research has shown that the majority of cryptocurrency holders pay their taxes through PAYE [Pay As You Earn, taxes levied on employee income payments], which means that the majority of cryptocurrency holders cryptocurrency has limited experience with SA income,” he said. . "This is important because it will be difficult to defend against the sanctions that could be applied."
“HMRC is certainly looking into how to use information from the OECD's Cryptocurrency Asset Reporting Framework,” Seymour said, referring to the G20 standards for cryptocurrency tax reporting.
He added that HMRC is using its "limited resources" to identify the most serious cases. “Adding separate identification of cryptocurrency income will make it easier for them to find customers and make it harder for them to hide in the data,” he said.