HMRC’s Cryptoasset Disclosure Facility

Isabella O’Brien, Tax Resolutions

HMRC’s February 2022 report identified that 10% of UK adults said they hold or have held a cryptoasset, and of these owners, only 19% said they had a professional advisor.

The rules surrounding the taxation of cryptoassets are complicated and most of the individuals involved do not appear to be taking advice. There is a high likelihood of errors in reporting or a total lack of reporting due to mistaken beliefs about the tax treatment.

In November 2023, HMRC set up a new online disclosure facility to enable taxpayers to report tax arising from unreported income and capital gains generated from cryptoassets.

Who can use the disclosure facility?

This disclosure facility is aimed at taxpayers (including individuals, executors, Trustees and partnerships) who have unpaid income tax and Capital Gains Tax arising from cryptoassets, including exchange tokens, non-fungible tokens (NFTs) and utility tokens, amongst others.

How does it work?

Taxpayers need a government gateway account to make a disclosure, then they will need to:

Complete online forms with their personal details, details of the gains and income for each tax year in question and the amount of tax owed.
Upload their calculations of the income and gains arising from the cryptoassets, as well as the computations of tax, interest and penalties due.
Click submit.
Make payment. This can only be made once HMRC have received the disclosure and sent over the payment details. HMRC guidance states they expect the payment details to be sent within 15 days, whereas the forms suggest adding 30 days of extra interest from the date the disclosure is submitted, which suggests that 15 days may be optimistic.

Time Limits

The disclosure forms ask which tax years require reporting and produces a list spanning 2022/23 back to 2009/10 (this being the first year cryptocurrency existed). Consideration as to how many tax years need to be included is directly related to how the error or complete lack of reporting came about.

HMRC’s guidance on the cryptoasset disclosure introduction page briefly summarises the time limits for correcting errors in reporting cryptoassets on tax returns as follows:

if a taxpayer took ‘reasonable care’, they need disclose four years
if a taxpayer did not take reasonable care, they need to disclose six years
if a taxpayer acted deliberately, they need to disclose up to 20 years, albeit the earliest year will be 2009/10 as noted above.

These rules relate to inaccurate returns submitted, but there is no guidance about how many years to disclose in the event of tax returns not being submitted at all, also known as a “failure to notify chargeability”.

We are concerned that the facility enables taxpayers to state they behaved in a way that is deliberate, but there is no mention of the Contractual Disclosure Facility (CDF). This is concerning, because the CDF allows individuals who have committed tax fraud to come forward to HMRC to make amends; they will be granted immunity from prosecution for tax fraud as long as they comply with the terms of the CDF. The cryptoasset disclosure facility makes no such promises.

The rules related to time-limits are not as straightforward as they may seem based on HMRCs limited commentary, so it is advisable to get input from a specialist team to assist in preparing any kind of disclosure.

Oddities with the Disclosure Facility

The cryptoasset disclosure facility is a digital disclosure service similar to the Let Property Campaign (LPC) and the Worldwide Disclosure Facility (WDF), but there are notable differences.

Unlike the LPC and WDF, the facility does not allow for a notification to first be sent to HMRC registering intent to submit a disclosure. This means there is no ability to secure “unprompted” status before making the disclosure, so users will need to hope that HMRC does not write to them before they are in a position to submit their full disclosure.
The payment details are only made available to the taxpayer after the forms are submitted. Other disclosure facilities encourage payments on account as soon as possible, warning of increased interest charges accruing. However, users of this facility will not easily be able to make payments on account to reduce exposure to interest charges.
The facility does not enable claims for capital losses, whereas it would of course make life easier if all matters could be resolved through a single disclosure.
The facility cannot deal with corporation tax or Inheritance Tax issues, which may be in point in some instances.

So, while the facility might prove a useful tool for some taxpayers needing to rectify past discrepancies, it will not be suitable for all.