What Happens If You Don’t Report Crypto to HMRC?

Wondering if you can get away with not reporting crypto to HMRC? We're covering what HMRC knows about your crypto & crypto tax evasion penalties in this guide.

What happens if I don’t report crypto to HMRC?

HMRC is crystal clear that crypto is taxed and failure to report gains or income from crypto is tax evasion. 

The punishments for tax evasion vary depending on the severity of the case, the intent of the taxpayer, and the type of tax avoided - but penalties can range from a 30% to 200% fine of the tax owed, all the way up to prison time.

Crypto tax evasion penalties

The penalties for tax evasion in the UK can be severe and range from financial penalties to criminal charges, including imprisonment. Here's a breakdown:

Financial penalties

• Failure to disclose unpaid tax on crypto assets: HMRC can impose additional tax liabilities, along with interest and tax-geared penalties of up to 100% of the tax owed. If the assets were held offshore, penalties could be even higher.

• Mistake or misinterpretation: If an honest mistake is made, there is generally no penalty, provided the tax is paid.

• Failure to take reasonable care: This could lead to a penalty of 30% of the tax owed.

• Deliberate understatement of tax: A penalty of up to 70% of the tax owed can be imposed if HMRC concludes that the understatement was intentional.

• Punishment for not declaring income: In the most severe cases, where fraud is deliberate and attempts are made to hide it (e.g., offshore accounts), penalties can reach up to 200% of the tax due.

Criminal penalties

• Income tax evasion: Summary conviction can result in a prison sentence of up to six months and a fine of up to £5,000. Serious cases can result in up to seven years of imprisonment, with the possibility of an unlimited fine if the tax is not repaid.

• Providing false documentation: This offense can result in a fine of up to £20,000 or a prison sentence of up to six months.

• Cheating the public revenue: This is considered the most serious form of tax evasion and can result in a life sentence or an unlimited fine.

Does HMRC know about my crypto?

The obvious question for someone thinking of avoiding HMRC is - how could it know about your crypto? Well, they do. In fact, HMRC has been laser-focused on crypto investors in recent years.

As part of its crackdown, HMRC started sending ‘nudge’ letters to taxpayers suspected of not properly declaring their cryptoasset activities. These letters require a response within 60 days. Ignoring them could lead to investigations or penalties.

As well as this, HMRC has previously sent requests to popular crypto exchanges, such as Coinbase, eToro, and CEOX.io, asking for information on UK clients and their transactions from 2017 to 2019. This mirrors the approach taken by the IRS in the US, which has also targeted crypto traders through data requests to exchanges like Coinbase. The UK is also leading the efforts on the CARF reporting framework, adopted by countries globally to crack down on crypto tax evasion.

This request for information from exchanges is part of HMRC’s strategy to identify taxpayers who have not declared their cryptoasset activities. While current efforts focus on the last two years, earlier traders may also be scrutinized in the future.

If you have undeclared taxable gains or income from cryptoassets, you can use HMRC’s cryptoassets disclosure service to correct your filings voluntarily, potentially reducing penalties. 

Read next: What is CARF?

How to do a voluntary disclosure to HMRC

HMRC has made it easy to make things right for any investor who mistakenly, or otherwise, failed to disclose crypto. 

Simply head over to the gov website and find the crypto assets voluntary disclosure section. This is a specific service for crypto assets, there’s another voluntary disclosure service for tax from other income or assets. 

You’ll need a Government Gateway account in order to access the service, or you’ll need to set one up. Before you start the service, you’ll need to have all the information available about:

• The cryptoassets you owe tax on 

• The number of years you need to declare for

• The amount of Capital Gains Tax or Income Tax owed

• Any interest owed

• Any penalties owed

When making a disclosure for undeclared cryptoasset income or gains, you will need the following information:

• Personal details (name, address, email, contact number, National Insurance number)

• The number of cryptoasset transactions

• The amount of undeclared proceeds or income (before subtracting costs or expenses)

• Acquisition costs and any related expenses

• Gains or profits made (with calculations)

• Any cryptoasset exchanges used and the number of assets disposed of

• Tax and interest owed (including calculations)

• Details of any cryptoasset commercial calculator used

HMRC states taxpayers can appoint a representative on their behalf to deal with this, or recommend using a crypto tax calculator like Koinly to get this information. 

The number of years you must disclose depends on your level of care:

• Reasonable care: Disclose the past 4 years

• Failure to take care: Disclose the past 6 years

• Deliberate non-payment: Disclose up to 20 years

You can use HMRC’s penalties and interest calculator to determine what you owe on top of your tax bill.