Crypto Investors – tax crackdown announced in 2024 Spring budget

Crypto Investors – tax crackdown announced in 2024 Spring budget

HMRC has announced it is consulting on the implementation of ‘global transparency rules’ which will mean crypto platforms will have to share client data with HMRC.

The new rules are designed to ensure that in future, crypto investors will find it much harder to avoid paying capital gains tax on their earnings from cryptoassets as global tax authorities will be able to exchange data.

The most recent consultations are gathering views on how best to implement the cryptoasset reporting framework (CARF) and amendments to the common reporting standard (CRS), which will cover crypto for the first time from 2026.

The rapid growth of the cryptoasset market has created significant challenges to tax transparency frameworks like the CRS that are integral to tackling tax evasion, tax avoidance and non-compliance.

This is a high-risk area as cryptoassets can be transferred and held without interacting with traditional financial identities and without any ‘central administrator’ having full visibility.

The CARF will be looking to provide a new framework for the automatic exchange of tax-relevant information on transactions in cryptoassets. This means crypto platforms and cryptoasset service providers, will have to share data on investors with tax authorities. They will then use the data to identify non-compliance.

The UK has signed up to the rules and is considering how to roll these out.

On reportable persons procedures, this will mean that service providers will have to obtain a self-certification from individual cryptoasset users which requires details relating to the user including, but not limited to, their legal name and jurisdiction.

Where a self-certification fails the reasonableness test, for example because it conflicts with other information held about the user, then the user must obtain a valid self-certification or a reasonable explanation and documentation before providing services to effect transactions.

The government is proposing a reporting deadline of 31 May for reporting CARF information relating to the previous calendar year, to maintain consistency with CRS.

The rules will come into force in 2026 at the earliest for data exchanges in 2027, and the government will ensure that businesses are given certainty on the scope of the UK’s implementation in sufficient time to prepare.

The government is proposing a penalty system for non-compliance, with one-off single penalties of up to £5,000 with subsequent daily fines of £600 for continued failure to comply. This mirrors the Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023.

The Treasury estimates that the measure will bring in revenue of up to £95m per year and will finish its consultation about implementing this new way of working on 29 May 2024.

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