HMRC will soon send out thousands of so-called “nudge letters” to cryptocurrency investors. What should you do if you receive one?

Nudge letters

In recent years HMRC has stepped up its use of nudge letters. These are designed to remind taxpayers of their responsibilities to report income or gains through self-assessment or, if they are not registered for self-assessment, to notify it that they have transactions to report. In the past nudge letters have been used for offshore bank account holders and owners of rental properties. HMRC will now use them for anyone who’s bought cryptocurrencies , which it refers to as cryptoassets.

How does it know?

HMRC has used its powers to obtain information from UK exchanges and dealers in cryptocurrencies about people who have bought or sold through them. The information isn’t detailed and HMRC can’t determine from it the reason for the transaction or whether you made or lost money as a result. A nudge letter is therefore just a gentle reminder that you might need to make a declaration to HMRC and to put you on notice that it has its eye on you.

Action required?

If you receive a nudge letter and bought cryptocurrencies in 2020/21 or earlier but haven’t sold any, there’s nothing for you to do. Conversely, if you sold cryptocurrencies in 2020/21 you should, if you haven’t done so already, check whether it resulted in a taxable gain or loss which ought to be reported on your self-assessment return for that year ( yr.18, iss.13, pg.4 , see The next step ). If you’ve already sent your tax return and not included a reportable cryptocurrency transaction, submit an amendment without delay. The same applies for 2019/20 transactions.

Trap. If you made a taxable gain or profit from selling cryptocurrencies for 2020/21, are not registered for self-assessment and have not reported it to HMRC, you might be liable to a penalty. To minimise the chance of this contact HMRC as soon as possible, preferably before you receive a nudge letter. If you have an accountant contact them first.

If you’ve sold crytopcurrencies and haven’t checked if you made a gain or loss, do it now and notify HMRC if you need to declare it. If the transaction was in 2020/21, do this on your self-assessment return for that year.

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