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October 27th 2021

HMRC to target crypto traders with "nudge" letters

HMRC has confirmed that it intends to launch a new campaign to encourage crytoasset holders to declare their tax liabilities correctly.

Cryptoassets are taxed in much the same way as stocks and shares in the UK. Both Income Tax and Capital Gains Tax may apply, depending on the nature of the activities being undertaken.

The text of HMRC’s nudge letter to cryptoasset holders is designed to help people get their tax affairs right, the department said.

The new campaign indicates that HMRC is becoming increasingly worried about the loss of tax revenue associated with crypto activities. Many of the exchanges have shared lists of crypto investors with the authority, which has significant powers to access such information.

The nudge letters may be a precursor to more concerted action. Affected individuals and businesses are urged to comply with the requirements and to seek appropriate professional tax advice.

Nudge letters have had rather a bad press because they tend to be fairly generic and can cause a lot of unnecessary stress for taxpayers. The Chartered Institute of Taxation has urged HMRC to use nudge letters “to build trust with taxpayers rather than cause alarm”.

Because HMRC is using data gained from digital information exchanges, it has been reluctant to reveal what information it holds and omits specifics in the letters it puts into the public domain, the CIOT explained.

To lessen the stress of non-specific nudges or the potential for acting on inaccurate data, the CIOT urged HMRC to develop more accurate analytic techniques before sending such letters. “Trust would be improved if the information was shared with taxpayers,” the institute added.

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