Blog
Enhancing Public Accountability: Key Elements of the Public Office (Accountability) Bill 2025
Kirsty Cook
The digital asset market has gained significant media attention in recent years. The rise and fall of the value of digital assets, losses arising from fraud, and the collapse of big names has attracted widespread attention from the mainstream media and from HMRC.
What is the issue?
Individuals and companies are making and receiving payments in digital assets, as well as investing in cryptoassets, cyptocurrency, and virtual currencies.
Some companies have rewarded staff with digital assets in place of traditional incentives. The non-fungible token market has resulted in many organisations and individuals acquiring and selling tokens that represent digital media.
These situations, while novel to many of us, give rise to potential tax consequences. Particular areas of interest stem from the greater adoption and consideration of value received from activities such as staking and mining, in addition to buying, selling, or generally investing.
The world of cryptoassets is an area of focus for HMRC. In 2021, HMRC published an internal cryptoassets manual for HMRC staff, taxpayers and advisers to understand ‘HMRC’s interpretation of the law as it relates to cryptoassets’. The crux of the guidance was that HMRC does not consider the buying and selling of cryptoassets to be the same as gambling.
It was not until November 2023, that HMRC published guidance for
taxpayers to understand when, and how, to make voluntary disclosures of any unpaid tax if they have income or gains from cryptoassets.
HMRC’s guidance reiterates its focus on the collection of tax relating to digital assets. The guidance sets out the number of years of tax that will need to be repaid in respect of cryptoassets, which depends on why there was an underpayment of tax in the first place:
- reasonable care (four years);
- careless omission (six years); or
- deliberate omission (20 years).
Where the correct tax has not been paid, interest will apply as well as potentially penalties. The level of penalty will depend on (among other things) the reason for underpayment, whether disclosure was prompted or unprompted, and the quality of disclosure and helpfulness. Specific advice is essential at this stage to mitigate penalties.
What taxes may apply?
As you will expect, this is an ever-evolving area of tax. Some situations, where tax may be applied, are set out below.
VAT
In particular, in relation to those who have launched token or digital asset projects. These taxpayers may need to consider if VAT is properly owed or chargeable on a particular sale, at which points, and what rates apply.
Corporation tax
Companies that have invested in digital assets as a trading business (whether directly or indirectly) may be required to pay CT on taxable profits from digital assets (including from mining or staking).
Income tax
Individual taxpayers, and their advisers, will need to consider whether the relevant interactions (including trading, mining and staking) give rise to income tax obligations.
Capital gains tax
Where digital assets are purchased, sold or transferred each transaction (including where tokens are transferred for no value, or are traded for other tokens) may give rise to a potential CGT liability (for both organisations and individuals).
What next?
This is a constantly developing area and no two situations are ever the same. HMRC will, we expect, continue to focus on the recovery of unpaid tax on cryptoassets and we expect case law in this area to develop in the coming years.
Advisers and taxpayers alike will need to ensure that they are on top of the changing landscape and seek specialist advice on their respective obligations, including whether ornot disclosure should be made, and if it should – how to best inform HMRC of an underpayment of tax.
Where HMRC suspects that tax obligations are being avoided, or evaded, many are experiencing an increasingly aggressive approach along with the adoption of a presumption of guilt. A seemingly small dispute could escalate into a much bigger enquiry once HMRC is involved and so advice, as always, should be sought sooner rather than later to mitigate penalties, reduce interest, and avoid reputational damage.
First published in Taxation Magazine on 4 March 2024.
further information
If you have any questions or concerns about the topics raised in this blog, please contact Waqar Shah and Krishna Mahajan.
about the authors
Waqar Shah is a Partner in the Dispute Resolution department, focusing on the resolution of complex tax matters. He acts for high net worth individuals and corporate clients across all sectors in respect of HMRC disputes and investigations across the full range of taxes. This typically includes VAT disputes, employment tax matters (including 'IR35'/off-payroll working), customs/excise duty issues, tax fraud investigations, and more recently, National Minimum Wage enquiries.
Krishna Mahajan is an Associate in the Dispute Resolution Team, who specialises in litigation and resolution of complex tax matters. Krishna has extensive experience in tax and trust litigation including working on Codes of Practice 8 and 9, cross-jurisdictional schemes with UK tax implications, settling EBTs and film finance schemes with HMRC, and concluding long standing HMRC enquiries.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
You may also be interested in:
Blog
HMRC Covid scheme amnesty: action by 31 December 2025
Waqar Shah
Blog
‘No win, no fee’ - are clients being hoodwinked?
Dale Gibbons
Share insightLinkedIn X Facebook Email to a friend Print