HMRC asking for records of Crypto Exchanges

With Bitcoin looking like it's here to stay, HM Revenue & Customs, is now pressuring crypto-currency exchanges to reveal customers' names and transaction histories, in a bid to claw back unpaid taxes, industry sources said. Letters requesting lists of customers and transaction data have landed on the doorsteps of at least three exchanges doing business in the U.K. – Coinbase, eToro and CEX.IO – in the last week or so, the sources said.

The move is following a pattern set by the U.S. Internal Revenue Service (IRS) and other governments. Last month, the IRS began sending warning letters to over 10,000 Americans who it says participated in virtual currency transactions but did not report them properly.

HMRC is looking to get up to 10 years worth of historical data but that might prove difficult to achieve. Still, even if the administration manages to go back 3 years, it would mean serious tax bills for those who thought trading virtual currencies was a tax free endeavour! HMRC published in 2018 a policy paper explaining the tax treatment of crypto-assets. As described in the paper, for most people, capital gains tax will be due on any gains they might have realised. But doing the calculation of the gain might prove more complex than with other securities. Indeed, transferring bitcoins in or out of an exchange is not a taxable event per se. And conversely, buying something with Bitcoin or receiving income in crypto-currency is a taxable event!

This is why it's crucial to keep records or all transactions and refrain from using crypto-currencies as a payment currency, at least until there is a de minimis exemption like with other currencies. As, even if your gains are below the annual allowance of £12,000 (for 2019/20), you still need to declare the sales if they total more than 4 times the annual allowance, i.e. £48,000. For people who don't already do a tax return, it means registering for Self Assessment. And if you are aware of gains that you have failed to declare in the past, it's a good idea to come forward and call HMRC to avoid steeper penalties.