Case of the Month – Cryptocurrency – HMRC Disclosure

 

Scenario

Mr A, a UK resident higher-rate taxpayer, had actively traded cryptocurrencies over a period of approximately four years (2021/22 to 2024/25) using multiple online platforms, including Binance, Coinbase, and Kraken. His activity included frequent spot trades, occasional use of stablecoins, and participation in token swaps. Over the period, his total crypto disposals amounted to approximately £450,000.

 

The Issue

Mr A was unaware that most cryptocurrency disposals are subject to UK Capital Gains Tax (CGT) and that detailed transaction records are required to calculate gains under HMRC’s share pooling and matching rules. He had never reported any crypto gains on his Self Assessment tax returns.

As a result:

• No CGT had been declared for four tax years
• Transaction records were incomplete and not in a format suitable for tax reporting
• Some exchange accounts had been closed, making data recovery more complex

Mr A became increasingly concerned after reading about HMRC’s heightened focus on cryptocurrency compliance and their data-sharing arrangements with major exchanges. He approached ETC Tax proactively to regularise his position before HMRC made contact.

 

How We Helped

ETC Tax undertook a comprehensive review and reconstruction of Mr A’s cryptocurrency transaction history, including:

• Obtaining CSV data from multiple exchanges and wallets
• Reconstructing missing trades using blockchain explorers where necessary
• Converting all transactions into sterling values using HMRC-accepted exchange rates
• Applying UK share pooling and matching rules to calculate chargeable gains for each tax year
• Identifying allowable costs, including exchange fees and transaction costs

Following this review, we calculated total undeclared capital gains of approximately £185,000 over the four-year period. This enabled us to prepare revised CGT computations for each tax year and submit a comprehensive voluntary disclosure to HMRC. Our submission included a clear explanation of how the errors had arisen, and we successfully negotiated with HMRC to apply reduced penalties in light of Mr A’s prompt and unprompted disclosure and full cooperation.

 

Outcome

HMRC accepted the disclosure and agreed a lower-rate penalty. Mr A paid the outstanding tax, interest, and penalties in full, avoiding a formal enquiry or investigation. He is now fully compliant and:

• Receives ongoing advice on the UK tax treatment of cryptocurrency transactions
• Uses appropriate software to maintain accurate records of all crypto activity
• Has an agreed annual review process with ETC Tax to ensure compliance is maintained

 

Client Benefit

By acting proactively and engaging ETC Tax, Mr A was able to regularise his tax position with minimal disruption, avoid potentially higher penalties, and gain certainty over his crypto tax affairs going forward.

 

Next Steps

If you have a similar case to the one above or would like to discuss your crypto situation further please get in touch enquiries@etctax.co.uk