A client approached us with a mix of traditional employment income and significant cryptocurrency activity. On top of trading, they were paid in crypto for providing freelance services in content creation. They had already used specialist crypto tax software but were concerned about its accuracy and wanted our expert review before submitting their self-assessment.
Issue
Two challenges stood out:
1. Tax treatment: We needed to review each type of crypto activity – trading, income from content creation, and other transactions – to determine the correct tax treatment.
2. Software accuracy: Specialist crypto tax software is a great tool but not always perfect. Errors can arise from:
o Missing or misclassified transactions
o Inaccurate token pricing
o Unmatched deposits and withdrawals
o Complex DeFi transactions the software can’t handle automatically
The client wanted our review to add value beyond what the software alone could provide.
How we solved it
As part of our review service, we:
• Reviewed all crypto data in the software;
• Analysed each type of crypto activity to confirm the correct tax position;
• Checked largest gains, losses and problem areas;
• Reconciled missing costs, unmatched deposits, and withdrawals
• Reviewed DeFi activity manually where the software struggled;
The outcome
Following our review service, we were able to provide the client with a more accurate tax report to ensure they didn’t overstate or understate their liabilities. We then prepared their self-assessment tax return to report these liabilities to HMRC.
Our review gave the client assurance they couldn’t get from software alone. By reviewing each type of activity and correcting key errors, we ensured their crypto tax position was accurate and HMRC-compliant, giving them peace of mind when filing their return.
Next steps
If this case sounds familiar please do get in touch.
For those of you that still think crypto is outside HMRC’s reach, think again!
Whether you’re a casual trader, a long-term holder of crypto, or someone dabbling in NFTs, HMRC will increasingly be able to track you down.
Most people now realise that cryptoassets are taxable, but it’s not just when you sell tokens for cash. Swapping one cryptocurrency for another, say, trading Bitcoin for Ethereum, counts as a disposal, and if there’s a profit, it’s likely to be taxable.
Using crypto to buy a pizza, a new laptop, or even giving it away in some circumstances? That, too, could be a taxable event.
Tax returns are getting a crypto update
In fact soon there’ll be a specific section just for crypto activity on your self-assessment tax return.
You’ll need to disclose the type of tokens you hold, when you bought or received them, how many you’ve got, and their value in pounds at the time of the transaction.
That means no more guesswork. You’ll need proper records.
HMRC advises keeping digital wallet addresses, dates of transactions, and bank statements. And if HMRC decides to investigate? Well in certain circumstances, they can look back as far as 20 years.
Right now, crypto exchanges don’t automatically report your activity to HMRC. But that’s also changing.
From 2026, new global transparency rules are expected to come into play. These rules could force platforms to start handing over customer data to the tax authorities, including HMRC, similar to the way online marketplaces like eBay and Etsy now report their seller’s income.
So, if you’ve been quietly trading or earning in crypto, the window for staying under the radar is closing fast.
Mining, earning, and spending crypto? It All Counts
What about crypto mining? Well, that counts as income too and should be reported as such on your tax return.
And if you’re getting paid in cryptocurrency, you still need to account for income tax and National Insurance. In most cases, this should be taken care of through PAYE, but if it isn’t, the responsibility lies with you.
What’s more, even where income tax is accounted for, if you later sell that crypto at a profit, you could also be hit with a Capital Gains Tax bill.
HMRC is already taking action
Last year, HMRC sent letters to individuals they suspected of failing to report crypto-related income and gains with a 60-day deadline to reply.
If you’ve missed declaring income in previous tax years, there is a way to sort this out through HMRC’s disclosure facility. But be prepared, this could result in penalties and interest on unpaid tax, so if you do get a letter, it’s always best to get professional advice before you reply
The crypto world moves fast, but HMRC is catching up. Whether you’re a miner, trader, investor, or someone paid in crypto, you need to be compliant.
Next Steps
At ETC Tax, we make crypto tax compliance clear, simple, and stress-free. We understand how the rules apply, how to get your records in order, and how to protect yourself from unnecessary penalties.
If you think you might have something to declare or just want peace of mind, get in touch with us today.
Alexander discusses ETC Tax’s experience of compliance work in the crypto space and considers some of the pitfalls and workarounds.
Compliance in crypto most often means calculating the tax on the profits of buying and selling different cryptocurrencies. There are various software packages around that claim to calculate the taxable profits and losses on crypto transactions and even split them between those chargeable to income tax or capital gains.
So, it’s as easy as uploading the data and downloading the report and plugging the figures on to a Tax Return? Well, not quite.
Weighing the Cost
There is a myth that cryptocurrencies aren’t ‘real’ somehow and so that until one converts some BTC or ONE to fiat, there is no tax implication at all. We have seen many cases where crypto traders have operated in blissful ignorance for years.
Of course, the reality is that the exchange of one asset for another will give rise to an event for CGT as a matter of basic principles. So, if ETH purchased at £10,000 is disposed of for something else (let’s say DOGE) worth £11,000 at the time of disposal, then there is a gain of £1,000.
Moreover, the terms of the capital gains tax legislation mean that the share pooling rules (same day pool > 30 days pool > s.104 pool) apply to all fungible assets which includes , ETH, DOGE et al.
Unfortunately, the volume of trades often means that calculating the gains in accordance with the share pooling rules is impracticable without software (our record is 750,000 transactions). Thankfully, software tools have been developed to deal with this issue.
Uploading data to the software is usually straightforward. You can download a spreadsheet of transactions (usually a .csv file) from your platform or blockchain explorer and upload that. Or you can give your software an API key for a Centralised Exchange (CEX) or the public key from the blockchain and the software will draw the data automatically and directly from the source.
Services such as koinly.io, recap.io and cryptotaxcalculator.io and many others are all very good and available to provide reports for a fee. However, in our experience it is common for them to throw out errors or alerts for transactions that aren’t recognised. Further, transactions may be miscategorised without any indication.
In one case, we were dealing with a client and the software we were using at the time calculated that they had a tax liability of over £200 trillion, enough to wipe-out the national deficit and more. Unfortunately for Hector, we spotted this small discrepancy and tracked down the problem; the software had identified BUNNY tokens as… BUNNY tokens. Searching various sources revealed that there were at least three different tokens using that code and each was worth a very different amount.
Unregulated Choice
As crypto technology has developed, more and more types of transactions are being developed, often by decentralised exchanges (DEX’s). DEX’s can be set-up by anyone who can write the code and deploy it on the blockchain. The makers could be anywhere in the World and their identity may not be known.
This gives rise to an “interesting” variation in the amount of data provided and the format in which it is provided. This can present considerable difficulties in compiling the data (the pooling rules apply to all assets of the same class, whether held together or not). Ideally, your software will be able to recognise the data from different sources but with more exchanges and blockchains emerging all of the time, no platform can promise to recognise them all.
Different Transactions
As well as throwing-up many different data formats, DEX’s are throwing-up many different forms of transactions. An example of this is liquidity pool staking for cryptocurrency pairs. Let’s illustrate with a BNB/CAKE pool on PancakeSwap:
A client would send some BNB and some CAKE (of equal US$ value) to a wallet used by the DEX’s smart contract. In return, the client would be sent some Pancake-LP tokens, representing that deposit. The BNB and CAKE top-up a pool of those assets so other people can exchange one for the other. The client would stake those LP tokens to earn a small cut of each exchange.
When the client closes their position, they would unstake their LP tokens and then exchange them for some BNB and CAKE. However, the proportion of the BNB and CAKE in that pool has changed and so the proportion of those assets received back by the client will not be the same as those committed to it.
Naturally, these utilities were designed with no thought at all to the accounting or tax compliance needs of the users!
In any transaction of this type, consideration will have to be given to what is going on. Are there capital disposals and acquisitions? Do the LP tokens have a value? Can they be exchanged on the open market? Are there any income events? Does staking the LP tokens represent a disposal?
Correcting Errors & Resolving Alerts
Fortunately, software platforms such as Koinly allow you to change or edit transactions as needed. The software developers simply can’t write the software to correctly recognise every possible transaction, all of them are playing constant catch-up.
One of the selling-points of the blockchain is the transparency of the data. All transactions conducted ‘on-chain’ (e.g., anything on a DEX) is recorded on the publicly accessible ledger that is the blockchain. Every single one. (Transactions on CEX’s like Binance, are not done ‘on-chain’, these transactions are dealt with internally by the platform in the same way that a bank deals with your money).
Most blockchains in use have one or more ‘explorers’ on which the publicly available data can be read. The explorer for the Ethereum blockchain is etherscan.io. These are simply websites that allow you to search for any public key (wallet address) or individual transaction. They are powerful (and free) tools which allow you to get ‘under the bonnet’ of clients’ transactions and work out what is going on if the software can’t.
Likewise, there a many free-to-use services which give lots of historical data about different tokens, including historical trading data. These include coingecko.com and coinmarketcap.com. These can be very helpful in resolving issues such as identifying tokens which the software does not recognise or even recognises incorrectly.
We have only touched on some of the issues that will arise when dealing with crypto compliance. We have found that ‘hands-on’ knowledge of crypto is invaluable in understanding the various transactions which can be seen. If you would like further advice or help with your crypto compliance problems, reach out to us!
If you have any queries regarding this article, compliance in crypto, or tax matters in general, then please get in touch.
