HMRC’s constant battle against tax evasion includes a continuing conversation with cryptocurrency platforms. One such company, Coinbase, has recently informed its clients that HMRC will have access to their data. Does this mean that cryptoasset holders will be in for bigger tax bills?
What has Coinbase agreed with HMRC?
In their article, The Block reports a quote from a Coinbase spokesperson: “These requests are commonplace for financial services companies. Through a series of constructive conversations with HMRC, we agreed upon on a more limited and focused disclosure, eventually narrowing it down to customers with a U.K. address who received more than £5,000 worth of crypto assets in their Coinbase account during the tax year of 2019/20.
They were initially contacted in September 2019 and these “constructive conversations” have led to reducing the scope of HMRC’s access to their customers’ data. This spokesperson also said that it will only affect 3% of their UK clients.
Does HMRC have access to all Coinbase data?
No, HMRC will only have access to data belonging to Coinbase customers with more than £5,000 of crypto assets.
Coinbase sent an email to all their affected customers last week, which includes this explanation:
“The original notice that we received from HMRC required Coinbase to provide certain records from 2017-2019 relating to all customers of our U.K. business. Based on further discussions with HMRC, a revised notice with reduced scope was issued that now requires the disclosure of customers with a U.K. address who received more than £5,000 worth of crypto assets on the Coinbase platform during the course of the 2019/2020 tax year. This includes both purchases or receipts of crypto to your Coinbase account.”
Through their negotiations, HMRC are getting some of the data they want, but not all of it.
The email also recommends that people get in touch with their tax advisers or accountants to verify their Capital Gains position.
It’s safe to presume that HMRC will have made the same request and be having similar discussions with other crypto asset companies.
Why are HMRC investigating the world of cryptocurrency?
HMRC consider this type of trade to be an asset, not a currency. And they always refer to any blockchain technology as ‘crypto assets’. As explained in this article, this makes any individual’s crypto assets subject to Capital Gains Tax. In order to check that tax liabilities are being fully met, HMRC must be able to evaluate whether or not all gains have been fully declared.
An HMRC spokesperson told The Block: “We want to help people get their tax affairs right and believe that taxpayers want to get it right. HMRC regularly gathers data from a range of information sources using powers provided by Parliament. Data collected by HMRC is used to improve the integrity of the tax system and to identify those that have failed to declare their gains.”
The usual rule of thumb applies – if you’re playing by the book, you’ve got nothing to worry about. If you’ve got crypto assets with Coinbase worth over £5,000, you need to check your position. If it turns out that you haven’t declared as you should, remember that taking the initiative with HMRC is always a good idea. Rather than waiting until they approach you with a problem.