April 2024 will see tax changes affecting cryptoasset reporting to HMRC come into effect. The changes will specifically focus on creating a dedicated section within HMRC’s self-assessment tax return form for cryptoasset capital gains tax (CGT). It’s advised that crypto investors are prepared for these changes well in advanced of avoid being caught out by the proposed reporting obligations.
So, what do crypto investors need to know?
The cryptocurrency domain has been considered a hub for criminal activity with the growing threat of cyberattacks and theft. What has largely been the focus on seizing assets from criminal gangs and terrorist cells, HMRC has now turned its attention to crypto investors hence the proposed changes for 2024.
It should be noted that any profits or gains made when trading or investing in cryptoassets could be taxable, therefore crypto investors should seek advice if unsure. Investors should also be aware of the CGT annual exemption that is expected to be reduced from its current £6,000 per individual for the tax year 2023/24 to £3,000 per individual for 2024/25.
With the threshold being set lower, more and more investors could potentially fall within the CGT reporting regime for the first time. Failure to report all relevant income and capital gains on an individual’s Self-Assessment tax return can lead to HMRC issuing an enquiry into a crypto investor’s tax affairs which is likely to bring about penalties for failing to meet reporting requirements. As the focus remains firmly on the need to pay CGT now, a similar approach could extend to income tax in the future.
Why are HMRC amending their reporting process?
HMRC’s plan to create a separate reporting procedure could be a ploy to raise further awareness around cryptoassets generating CGT but not the sole reason for driving the change. With the UK poised to become a leader in cryptoassets and technology investment, dedicating a section to cryptoasset gains and/or losses on personal tax returns may be an effective way to collect data. This would help the UK government boost its knowledge around crypto investment activities and how the UK compares globally. If disclosing cryptoassets CGT is a data-collection activity, then it could mean that HMRC are looking to plug any existing reporting loopholes. By accumulating trustworthy data, there will be greater transparency of the gains that are and are not disclosed.
This is also in light of the Bank of England considering the introduction of a digital pound, known as a central bank digital currency (CBDC), and also referred to as ‘digital sterling’ or Britcoin’. The implementation of digital currency puts crypto investors at a significant advantage than those who are less knowledgeable of what digital currency is and how it works. This is due to their understanding of digital wallets and online safety protocols. Investors will vastly benefit from their existing experience of storing, moving, and accessing cryptoassets safely.
What are the advantages?
An advantage of using cryptoassets for transactions is that it offers a more streamlined and instantaneous transaction than centralised banking methods. The digital pound will close the gap between investor confidence around crypto market volatility and the speed of transactions. The Cryptoasset reporting changes from 2024 will mean that Crypto investors must have their portfolios and records in good order to ensure all necessary gains are reported correctly to HMRC.
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