Panellists

• Stephen Relf, Technical Manager, Tax, ICAEW
• Richard Jones, Senior Technical Manager, Business Taxation, ICAEW
• Dion Seymour, Crypto and Digital Asset Technical Director, Andersen

Producer

Ed Adams

Transcript

Stephen Relf: Hello and welcome to The Tax Track, the podcast series from ICAEW where we explore the latest developments in the world of tax. Our subject for this episode is cryptoassets and how accountants can help their clients to meet their tax obligations. We’ll start with some myth busting, highlighting common misconceptions which can lead to errors when it comes to tax and cryptoassets.

Dion Seymour: Crypto-to-crypto transactions are a taxable event, as is the disposal of one crypto for another or one form of property.

SR: We’ll then explain why you can expect to see more of cryptoassets in your day-to-day work, and what you can do to prepare.

Richard Jones: There’s quite a significant number of people, potentially, who have got assets that are just above that CGT annual exempt amount. So they could really be caught out for the first time.

SR: I’m Stephen Relf, a Technical Manager for Tax at ICAEW. Today, I’m joined by Richard Jones, a Senior Technical Manager for Tax at the Institute, and by Dion Seymour, Crypto and Digital Asset Technical Director at Andersen.

RJ: Hi there.

DS: Hi, pleasure to be here.

SR: Taxing cryptoassets can be challenging, in part because we have to apply rules that were drafted before cryptoassets were developed. There is help out there, from HMRC’s Manual to the TAXguides and articles published by ICAEW. In fact, we probably have more information and resources to draw on now than ever before. Richard and Dion, despite this, do you still come across common misconceptions?

RJ: Yes. I mean, I think probably two of the most common ones that we still see are, firstly, an assumption that dealing cryptoassets is a form of gambling for tax purposes, which it’s not. And secondly, that cryptoassets, and particularly cryptocurrency, is money. And that’s a reasonable assumption to make, given the word currency in cryptocurrency. But in fact, it is not. It is, it is an asset, some other form of asset, just like a fixed asset, intangible asset or financial asset – they’re all assets that are taxable for UK tax purposes. Now, how you tax those depends on the nature of the activity and I think we’ll come on to that later, but I think it’s important to set out those fundamental points right at the start.

SR: And Dion?

DS: Following HMRC’s 2022 research, they found that these misconceptions still continue to exist, as Richard just mentioned. And even recently, I have found this still to be the case. Firstly, and most importantly, to remember, crypto-to-crypto transactions are a taxable event, as it is a disposal of one crypto for another, or one form of property to another. So, for example, Bitcoin to Ethereum. This is because what constitutes a disposal is actually very, very broad, and it does not require there to be any money – or if you’re in the crypto space, fiat money, which is another word for money – or currency to be involved. Now this can be surprising to some, but dry tax charges are not unique to crypto. So you’ve got to remember, it’s a tax on exchange, not withdrawal, because the tax legislation is not based upon whether you have any physical money in your pocket after the transaction.

SR: Could you just quickly clarify two terms for me there: the dry tax charge. What do you mean by that?

DS: So a dry tax charge is a term given to a transaction for capital gains where there is no money involved. So conversion, or an exchange of one painting for another, your painting. Let’s say Richard had painted something that’s worth £100 and you want to swap a Mona Lisa that, you know, you’ve got hanging in your wardrobe, just sitting there, not doing anything, and you swap it over. So arguably then, Richard’s painting, which may have been valued at £100, is now worth whatever the Mona Lisa is. So that can’t be a monetary tax charge, but there is a tax charge nonetheless, where money has to be paid.

RJ: It’s fair also to say that a number of other assets have got some form of relief when you go from one to another. So for example, certain share-for-share exchanges would be on a nil-gain, nil-loss basis. But we don’t have that kind of rule, at least at the moment, for crypto. So that’s maybe where people are stumbling.

SR: So the second point I wanted to clarify, I believe you mentioned fiat money. Is that correct?

DS: I did. So in the crypto space, the crypto asset, the people out there – the cryptocurrency, people – are used to the idea it’s not actually money because they quite often refer to real money as fiat money. So that’s F.I.A.T. – Fiat. That’s like the car, but completely from different origins because fiat comes from Latin, meaning let it be done. Certainly, when I was previously at HMRC, when we did customer communication, I always wanted to write fiat money and our communications people didn’t like that because they thought it was a term or jargon that the people in the crypto space wouldn’t understand. But no, actually, it’s they really do understand fiat money is issued by government, and they do appreciate that crypto, in that sense, isn’t money, but they do like to argue it is still money nonetheless.

SR: Okay. So I think it’s fair to say then that there are still some gaps in knowledge, including on my part because I’ve certainly learned a lot in the last few minutes. Also important then for agents not to be complacent. Now, Dion, am I correct in thinking that ownership of cryptoassets is increasing, perhaps making it more likely that accountants will have to deal with them?

DS: Absolutely. So we’ve mentioned the HMRC research, which is a bit dated in 2022 now, but there’s been more recent research done by the FCA, so the Financial Conduct Authority, that is suggesting roughly about 12% of UK adults, or around seven million people, own crypto in the UK. They estimated that was around 4% in 2020, so yes, I think it’s much more likely that individuals and businesses own or use them, and that accountants are much more likely to encounter them as time goes on. Also, it’s becoming much more visible in the tax system so, many times, we would think with HMRC now. So for 2024/25 the tax return will now include cryptoasset boxes to identify where if you’ve got to declare any gains or losses. Previously, they were only included in the catch-all box of capital gains or other, or CG other, which also included aspects such as business assets disposal relief and other such things. So certainly, now it’s going to be much harder to argue that you’ve overlooked crypto with the whole section on cryptoassets now. Also, as they’ve grown in popularity, identifying those who own them is going to become much easier in the future for HMRC to identify them as a liability. And for HMRC, a useful source of this information will be when the Cryptoasset Reporting Framework, or CARF, is implemented from the OECD.

SR: So we’ll come on to CARF again in a bit more detail later. But let’s just stick with 2024/25 for the moment. So you mentioned that on the tax return there is now a new cryptoasset box, or boxes, is it?

DS: Boxes now, boxes, multiple.

SR: So quite a lot of not additional information, because you had to provide that earlier, but this time, it’s more visible. It’s on the front of the return.

DS: Yes, absolutely. So previously, the IRS, when they first brought out, changed their 1099 form they included in the first year a tick box: did you own cryptoassets in the year – just a tick, but they found that quite unhelpful. And so in the subsequent year, they actually started including many boxes to include within this, and for HMRC, it would have been a very similar process of, how do you actually do it? Because there is a cost to implementing all of these changes. And so a single box would be a cheaper option, but its utility would actually be quite limited. So the fact that there’s multiple boxes there ready shows HMRC is getting very serious because the cost of implementing that change is quite high.

SR: Yes, so a good indication that, as you say, they are getting serious about collecting this information in and checking it. So just sticking with the 2024/25 tax year at the moment, the addition of the new boxes also coincides with a reduction in the CGT annual exempt amount. Now we remember this being £12,300, but it actually dropped to £6,000 for 2023/24 and it’s just £3,000 for 2024/25. Now, Richard, is that likely to mean increased engagement with the tax system?

RJ: That’s right. First of all, I think it’s worth highlighting that there are different ways in which crypto could be taxed and so, in very broad terms, you know, if you’re a trader in crypto, then that’s likely to constitute a trade for tax purposes. Or, similarly, if you receive crypto by reason of employment, then that could be an employment tax charge. But let’s assume that you’re the type of person that makes the occasional one-off transaction. So you’re not a trader, that’s likely to fall within the CGT net, as you say. And we’ve got a couple of things happening here. First of all, as you said, the annual exempt amount is going down quite significantly. And then the other thing is that the value of crypto that people are holding is slowly going up. So Dion referenced the FCA research there. One of the important statistics there is within that document is the percentage of people holding crypto where their value is between five and £10,000 has increased from 6% of people in 2022 up to 19% in 2024 so, as you can see, there’s quite a significant number of people, potentially, who have got assets that are just above that CGT annual exempt amount, so they could really be caught out for the first time, you know, potentially in this current tax year.

SR: Yes. So that’s kind of two things conspiring there, isn’t it? We had the annual exemption coming down and, at the same time, the value of cryptoassets increases.

RJ: Yes.

SR: So Dion, you mentioned the Cryptoasset Reporting Framework – hope I’ve got that right – CARF, earlier. Could you tell us a little bit more about that?

DS: So yes, the Cryptoasset Reporting Framework, or CARF, is a new reporting framework from the OECD that requires reportable cryptoasset service providers, as they are called, or let’s just call them cryptoasset exchanges like Coinbase or Binance, to provide details of their transactions to tax administrations. CARF is being introduced to over 60 jurisdictions around the world. Currently, I think the figure is around about 68 jurisdictions that have signed up to bring CARF in in the next couple of years. And HMRC has already released its draft regulations for CARF with an effective commencement date of 1 January 2026, after which transactions will need to be recorded by the reportable cryptoasset service providers, or RCASPs, to be reported to tax administrations and with the first exchange of information occurring in 2027.

SR: So quite a burden, then, possibly on the exchanges themselves, they have to provide this information to HMRC. Does HMRC then share it with the other governments across the world that have signed up to it?

DS: Absolutely. It will be a big lift for the reportable cryptoasset exchange providers. It’s going to be a significant change to them because while, for example, HMRC has gathered information from exchanges previously, the level of information that’s going to be needed to be provided going forward is going to be more significant, with the fact that we have so many jurisdictions signing up to CARF, which will all have the same reporting requirements, and will then give HMRC information from exchanges around the world. So it’s a big change for the actual exchanges to start recording the information in a way that’s going to be helpful or required, should we say, by the CARF framework.

SR: Is this information that the exchanges would already have, or will they need to get more information from the individuals then?

DS: That’s quite an interesting question. So in some senses, you could argue this should be the information that exchanges should already have, but with a limited requirement for exchanges to record information previously, perhaps some of them may have been a bit more lax in the information that they actually previously stored. So going forward, it gives everyone a much more level playing field. So those that did record the information or could provide information without too much of a problem, versus those that just didn’t record it and – certainly I know from working both in HMRC and in practice – when customers have tried to go to exchanges to get information, there have been incidences where exchanges say they’ve only recorded information for, say, three months. This will actually stop a lot of those issues.

SR: So clearly, HMRC are going to have more information, better information, which they can then cross check to the new boxes on the self assessment return. So everything seems to be coming together quite nicely?

DS: Indeed it is. One would almost say that has perhaps been planned that way for the boxes to be brought in just as the CARF information was becoming available. Because if you think back to the CG other, it would have been very difficult, if not impossible, for HMRC to identify cryptoasset gains in CG other and clash that, or should we say match that against CARF data.

SR: Fair to say, then, there will be an increased focus by HMRC on the taxation of cryptoassets going forward, this year and next year.

DS: Yes. And I think when you think about it recently, owners of cryptoassets have already come under increased scrutiny from HMRC via a number of nudge campaigns. If we think about the current limited source of information available to identify those who own cryptoassets and then, with the information from CARF, it will certainly lead to, I think, an increased HMRC compliance activity. HMRC are going to have more information than ever before on cryptoasset owners. And the combination of this with the SA changes, HMRC will certainly know if individuals haven’t disclosed cryptoasset gains, or losses, and checks into calculations may certainly become much more common.

SR: So far, I think we’ve pretty much concentrated on the present and the future when it comes to tax compliance. But there is also the past. It’s important we don’t lose sight of previous tax years. And Richard, it is possible, isn’t it, that people may have failed to declare cryptoassets profits or gains made in earlier years. What should they be doing in that situation?

RJ: Yes, so there are a number of routes available to them. If their non-disclosure or lack of payment of tax relates specifically to crypto, then there is a specific crypto tax disclosure regime that was launched last year. Now this applies to three types of tokens, so exchange tokens, non-fungible tokens – or NFTs as they’re often known – and utility tokens. So essentially, what you need in order to use that service, first of all, you need a user ID on the government Gateway. And then once you’ve got that, you need to gather quite a lot of bits of information in order to input into the digital service. So that’s things like your personal details, like, you know, for example, your contact details, your national insurance number, details of the crypto transactions concern. So that could be things like the dates of acquisitions and disposals, and also the costs and the disposal proceeds. And then finally, you need to have made a calculation of the tax due as well as any interest or penalties owed. Now probably a lot of individuals who aren’t tax savvy are going to need some help with that. So I would imagine a lot of those who aren’t already engaging an agent to help them with their tax will probably be wanting to engage someone to help them with those calculations. I think it’s also worth saying that if you’re an individual that has other tax discrepancies, so for example, you’ve under declared on other forms of income, then the crypto disclosure service may not be the one for you. You might want to look, for example, at the digital disclosure service, which allows you to make a much wider disclosure.

SR: You mentioned quite a lot of things there. So we have the calculation of the tax, which I think a lot of people will find quite challenging, depending on their circumstances, then the calculation of interest and penalties as well, which isn’t easy given the rules around disclosure. So very important then that everyone involved in this, from the individuals themselves to the agents, understand what’s involved.

RJ: Yes, that’s right. And one of the most difficult things around penalties is that they are often, the amount of the penalties are often determined by reference to the behaviour of the taxpayer. So the more naughty, shall we say in inverted commas, they’ve been, the longer firstly, the potentially, the higher the penalty and secondly, the more years or back years the taxpayer would need to disclose. So for example, if they have made what’s often referred to as an innocent error, then they only have to go back four tax years. If they haven’t taken reasonable care – and again, the taxpayer, or perhaps with help with their agent, will have to determine whether that’s the case or not, looking at existing case law – then you have to go back six years. And finally, if you’ve deliberately misled HMRC, which I think you probably know whether you have or not, in theory you’d go back 20 years. But in fact, crypto has only really been around since 2009 when the first Bitcoin was made available to the public. So actually, you’re just going to go back as far as you can go back by that point.

After that, so you make your disclosure. HMRC will then send a payment reference number that will allow you to make the payment, and you need to do that within 30 days of the disclosure submission, so not the date that you receive the confirmation or the payment number from HMRC. So that’s important to remember. And then once you’ve done that, HMRC will either confirm that it accepts the offer, confirm that it doesn’t accept the offer, or it will write to ask for more details. So it’s actually quite an involved process and I would definitely say it’s important to involve a professional who understands this system to get the best outcome.

SR: Finally, Dion and Richard, given the challenges you’ve outlined today, is there any advice you’d give to accountants? Dion, do you want to go first?

DS: Sure. I think the most important thing here is, don’t stereotype your clients. It might be easy to say that there’s just going to be younger, more affluent males who are involved, but actually the research does highlight, while that might be the case, that doesn’t mean that all cryptoasset owners will actually meet that description. So it is very important to ask the question of your clients if they have owned crypto and again, particularly in line with the fact that the SA return is changing with the cryptoasset boxes, I think it’s going to be much more prevalent that you must ask the question.

SR: Richard.

RJ: Yes, I think really accountants can be more proactive. Often, you know, particularly when I was in practice, you would have a client come and tell you: “Oh, I’ve done this thing.” And you’d say: “Well, I wish you’d told me before you did it.” It’s quite a kind of like typical trope, I guess. But I think that’s true just as much with crypto. And I think a couple of things you can do to really help are, first of all, if, as an accountant, you use an end of tax year checklist or you have the kind of end of tax year or prior to end of tax year meetings with your clients, ask the question at that point – have you acquired crypto? Or have you just disposed of any crypto? And the other place that you can do it is if you use a checklist for completing tax returns, then you can include that as well in that checklist. I think those two measures will help you to keep on top of it for your clients.

SR: Okay, some great advice, I think especially around being proactive. As you say, it’s very important to keep in touch with clients on all aspects of tax, but possibly particularly in this case.

Well, in conclusion, determining the tax treatment of cryptoassets can be challenging, but it’s become increasingly important that accountants understand the rules, and as we say, they are proactive in dealing with clients. Please see the show notes for links to ICAEW’s TAXguides and articles for further information. That’s it for this episode. Many thanks to Richard and Dion for your contributions.

DS: Thank you.

RJ: Thank you very much.

SR: And thank you for listening. All of the topics we’ve discussed today are covered in more depth in the articles linked in the show notes. If you found this useful, then don’t forget to subscribe so you never miss an episode. You can rate and share this podcast, too. We’ll be back next month with the next Tax Track. In the meantime, why not check out the sister podcasts from ICAEW. Accountancy Insights provides business finance and accountancy analysis, while each episode of Behind the Numbers offers a deep dive into a selective topic. There’s also the students’ podcast aimed at young professionals. If you’re not already a member of ICAEW’s Tax Faculty, remember that Institute members can join the faculty for no additional cost. Faculty members receive our monthly TAXline bulletin. In addition, anyone can subscribe to receive our weekly TAXwire newsletter containing the latest tax news from ICAEW. Thank you for listening.