Understanding UK Crypto Tax Filing for 2022/23

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Many crypto investors in the UK will file a tax return for the first time for the tax year 2022/23. Whether you are a seasoned crypto enthusiast or a beginner, it’s crucial to understand your tax obligations. In this guide, we will simplify the complexities of crypto tax in the UK and help you navigate the process.

When should I declare crypto activity?
HMRC make it clear that all crypto activity is taxable and not tax-free gambling. Most commonly it is treated as investment activity. Investors pay income tax or capital gains tax on yield/rewards generated from crypto, depending on the circumstances. Capital gains tax is paid on capital gains arising on taxable disposals. Business activity is rare and is not covered here.

Taxable Disposals of Crypto:

  • Selling crypto for fiat currencies (eg GBP, USD, EUR).
  • Swapping one crypto asset for another.
  • Making a gift of crypto (note: there’s no tax if it’s a gift to your spouse or a qualifying charity).
  • Using crypto to pay for goods and services (including transaction fees).
  • Engaging in DeFi activities like staking, lending, liquidity pools, or providing collateral for loans.

Filing a Tax Return:
If your circumstances necessitate a tax return, you must register with HMRC and file a tax return for the tax year ending on 5 April 2023 if:
Your net capital gains, before capital losses (from all assets including crypto) exceed
£12,300.
Your total investment income from all sources (crypto, dividends, interest, etc.) exceeds £10,000.
If are required to file tax returns for another reason (ie rental properties), you need to declare capital gains and losses from crypto on the return if your disposal proceeds exceed £49,200; even when the capital gains are less than £12,300.

If your investment income falls between £1,000 and £10,000, you must notify HMRC via a phone call. Failure to register by 5 October 2023 may result in late registration penalties, but these are often waived if you file your 2022/23 tax return and pay the tax by 31 January 2024.

Don’t forget to claim your crypto losses! Even if you don’t have to file a tax return, you should still claim your capital losses by sending a letter to HMRC, as they are carried forward for future use.

Act now!
With the 31 January 2024 deadline for filing the 2023/24 tax return rapidly approaching and the number of UK crypto users increasing, we recommend that you take action on your crypto tax position now. Utilise crypto tax software, with our trusted partner Recap.io as a recommended option. This software is crucial for accurately calculating your tax obligations.

It factors in the sterling value at the time of the transaction and considers the pooling and matching rules when determining your acquisition cost. Entering your crypto data into the software can be time-consuming, so don’t delay.

If you need help with your crypto tax position, please contact crypto tax expert Louise Lane here >>>

Judges endorse the idea of seeking expert tax support

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Another tax case won by HMRC highlights the need for directors and accountants to get specialist tax support when leaving their tax “comfort zone”.

In a recent Tribunal case one of the company directors was an accountant and the judges criticised him for misunderstanding some key tax rules. The judges considered that a reasonable director would have sought independent tax advice from an expert.

The case in question concerned connected companies that engaged sub-contractors to carry out construction works. Late filing penalties were first imposed in 2016 and then HMRC challenged the gross payment status of the companies’ contractors.

Finally, determinations were issued and appealed resulting in, eventually, the recent hearing before the First Tier-Tribunal (FTT) – which found in favour of HMRC.

So the FTT rejected a ‘reasonable defence’ argument, finding that the Director, even given his experience of the Construction Industry Scheme, should have checked the position with a tax expert: “This is far from a counsel of perfection. It is what a reasonable director who finds himself leaving his tax ‘comfort zone’ would do”.

Chairman of the Tax Advice Network, Mark Lee says:

“Of course we are happy to endorse this advice from the Judges. It is relevant, not just to reasonable directors, but also to reasonable accountants. Whenever they need to consider aspects of tax that they do not deal with on a routine basis (outside of their ‘tax comfort zone’), their professional obligations are clear. And this case confirms that. They must seek advice and support from a suitably experienced specialist tax expert”.

And this approach is also clearly set out in the Guide to Professional Conduct in Relation to Tax (PCRT). Compliance with PCRT is obligatory for the members of many UK accounting and tax bodies and for members of the Tax Advice Network.

Paras 2.11 and 2.12 state that:

A member must not undertake professional work which they are not competent to perform unless they obtain appropriate assistance from a suitably qualified specialist.

A member who is giving what they believe to be a significant opinion to a client should consider obtaining a second opinion to support the advice. Where the second opinion is to be obtained externally, due regard must be had to client confidentiality.

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Our members, between them, cover every specialist tax area. You can choose who to approach and do so without giving us your details or paying a penny at FindATaxAdviser.online
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And tax advisers with any specialist expertise are welcome to join the Tax Advice Network.

Family Investment Companies

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A family investment company typically holds and manages a family’s investments. Often the primary objective is to protect and pass the family’s wealth down the generations whilst minimising inheritance tax. Before 2006 it was much more common to use trusts to do this in the UK. But tax changes introduced that year led to alternative strategies being developed. Family Investment Companies (FICs) became a popular option – in the right circumstances.

Then in 2019 HMRC set up an internal unit to research the use of FICs due to concerns about unacceptable tax avoidance or even tax evasion. Just over 2 years later, in summer 2021, HMRC announced they were closing the research unit. They say they found “no evidence” of a correlation between those who set up FICs and “tax avoidance”.

The research concluded that the wealthy were using FICs as a “planning strategy, often with the primary objective of generational wealth transfer and mitigation of inheritance tax.”

This is good news for the wealthy and for their advisers. FICs have become increasingly popular since 2006 when tax changes made trusts less attractive as a route to secure the same primary objectives. This is because of the adverse tax charges that can apply to such trusts.

It seems clear to us that FICs are being used very much to avoid those additional tax charges. And that HMRC deems this to be acceptable tax avoidance and Inheritance tax mitigation – as long as those involved are fully compliant.
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Our Network includes specialists in advising on FICs. You can choose who to approach and do so without giving us your details or paying a penny.

“Give me pure tax evasion any day”

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This sentiment was expressed by one of our tax investigation specialist members on the Tax Advice Network’s private forum for members. What prompted such an intriguing comment?

The discussion related to aggressive tax avoidance schemes. I’m no fan and have long sought to highlight that the real risks of such schemes are generally greater than the promoters would have you believe. This is especially the case if you are dealing with promoters who are one or more steps removed from the tax brains that originated the scheme.

The tax adviser members of the Network were sharing their views as to the complexity of such schemes. This was in response to my suggestion that we consider adding the following as additional headings on our list of ‘specialisations’:

Avoidance schemes and strategies – resolving challenges

Sadly there are plenty of taxpayers and accountants who have been taken in by the hard sell and ‘assurances’ offered by promoters of tax avoidance schemes. It’s a fact of life that the problems only become apparent some years after the initial transactions took place. Our advisers are experienced in negotiating with HMRC and helping clients to extricate themselves from complex structures that have little commercial value.

Explanations and advice

Unlike the aggressive purveyors of tax avoidance schemes who focus on promoting and selling their ‘products’ our advisers prefer to focus on bespoke tax planning. Some of our specialists are well aware of the ‘solutions’ being promoted to reduce income taxes, capital gains tax, corporation tax, SDLT, NICs VAT and IHT. Whilst the tax reduction is often attractive, many clients decide not to proceed once they understand the risks (and there are always risks). Others may still be willing to proceed but only when fully aware of the risks and downsides they may face.

Call or email one of our specialist advisers if you want help in resisting a hard sell or a more down to earth explanation of a specific strategy, the risks and probable outcome.

Despite the potential interest in such generic services, we concluded that we could not offer to provide them in the way I had initially suggested. To do so would require specific members to have in depth knowledge across a wide range of specialist area of tax and the related avoidance schemes.

In practice most advisers only have such expertise in their own specialist area or areas. So, for example, one member noted that he would be willing to assist anyone who is involved with an employee loan scheme. However he would be reluctant to offer advice on non-employment related schemes as to do so would require a great deal of uneconomic research.

Another member of the Tax Advice Network noted that he has been instructed on a number of occasions after HMRC had successfully challenged schemes. He noted that it often only takes a little research to find:

“the little bit of writing – in the mass of over information – that covered the seller’s back and usually points to the naive customer not reading the blurb with enough detail to spot that they were likely to end up paying through the nose for very little.”

And another member noted that one of his past roles in a national firm of accountants was to unpick these avoidance schemes, with the result that very very few were sanctioned by the firm.

It became clear from our online discussion that there was no appetite for providing the two generic services I summarised above. Indeed, such is the lack of enthusiasm for such schemes among these experienced specialist tax advisers that one (a tax investigations specialist) was moved to conclude: “Give me pure tax evasion any day”.

How to tell if you’ve paid too much Stamp Duty 

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Stamp Duty Land Tax (or SDLT) has been big news lately, with the chancellor’s announcement in July of a ‘holiday’ on the tax for all properties of £500,000 or lower purchase price.

But what if you bought property at any price before July 2020? Can you be certain that you paid the right amount of Stamp Duty on your purchase? Might you be due a Stamp Duty Refund? And if so, how do you even go about getting one? 

There is no easy answer to the question of whether you may have overpaid your SDLT. With over 30 different exceptions and exemptions covering the type of property, its usage, the circumstances of the buyer and the nature of the purchase (to name a few), there is no one-size-fits-all equation that will instantly give the correct answer. 

Examples of factors which may prove relevant in the calculation of Stamp Duty on a property include: 

  • Land – if the property has land attached to it which is more than a simple garden. 
  • Mixed Usage – if the property has commercial buildings, agricultural land 
  • Annexes – many people fail to realise that a ‘granny annexe’ may qualify a property for relief under certain circumstances 
  • Any rights or interest over the land that do not benefit the dwelling itself i.e. commons rights to pass through over nearby parkland 

If your property has any of these elements, it is very possible that you will have overpaid your Stamp Duty Land Tax and may be due a refund. 

One well researched estimate* is that as many as one in five SDLT returns may be being incorrectly completed on property purchases, leading to millions of pounds of overpaid SDLT which HMRC will not proactively check. The only way to secure a refund of these overpaid monies is to approach HMRC with the correct assessment and seek an alteration of the original return based on the facts of the purchase. 

You may think that in order to make sure you didn’t overpay your SDLT, you simply need to call HMRC or your solicitor and double check with them. That’s where things start to get a little tricky. 

There are a number of reasons why solicitors are likely to make errors on many transactions, including relying on the HMRC calculator which doesn’t provide a 100% accurate picture on all properties. But solicitors also often simply don’t realise the actual complexity of SDLT as it stands. Because it shares a partial name with the old Stamp Duty, which was a broadly simple tax on the property itself rather than the individual, many of them assume it is the same.  

Additional problems arise from:

  • the proliferation of avoidance schemes set up in the early 2010s to take advantage of the increasingly labyrinthine legislation surrounding SDLT,; and
  • the aggressive stance taken on these by HMRC and the Solicitors Regulation Authorit.

Many accountants and solicitors are reluctant to make any more than the most cursory examination of the SDLT situation on any purchase, lest it result in unwelcome attention from their regulator. 

Calling HMRC introduces a whole other set of problems. HMRC helplines are not manned by people who are experts in SDLT. Or indeed law in general. Simple errors in basic understanding – such as confusing ‘civil partnerships’ with ‘common law partners’, can lead to disastrous errors. 

One must also remember that in order to assess a purchase for tax, HMRC will have relied on the SDLT return submitted to them, which itself will have been completed by the solicitor. HMRC itself has no knowledge of the property outside of what is provided on this form. Therefore, a purchaser calling them and asking if they are likely to have overpaid the SDLT on the property and be due a refund is only ever going to lead to the answer ‘no’. This is because HMRC will consider the property to have been correctly assessed based on the information they have. 

In order to firmly establish whether or not the SDLT on a purchase has been correctly assessed, you need a real SDLT expert to examine the details of the transaction – the type of property, the circumstances of the purchaser, the method of purchase, everything.  

They will then assess this against the full legislation relevant to the time of purchase, examining each of the various exemptions, exceptions and reliefs and ascertaining which, if any, apply. If any do. Then there must be a full report prepared along with an amended SDLT return, explaining exactly why the original assessment to SDLT was incorrect, what the actual position is, and what the amount of refund due should be.  

How do you tell if you’ve overpaid stamp duty? The same way you’d answer any specialist question – engage an expert and get them to give you the right answer.

David Hannah – SDLT expert. You can contact David via his profile here >>>>

*Research carried out by Cornerstone tax advisers.

Will they collect more tax if they again align the rates of CGT and income tax?

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“Increases in capital gains tax are inevitable now, despite doubts expressed ten years ago”, says Mark Lee, Chairman of the Tax Advice Network.

On 13 July, the Chancellor asked the independent Office of Tax Simplification (OTS) to undertake a review of Capital Gains Tax (CGT) in relation to individuals and smaller businesses. “The publication of a full scoping document on 14 July, just one day after a formal request was issued, suggests the request was no surprise.” Says Lee. “So, as the Sunday papers predict today, we are likely to see increases in the next Budget”.

The wording of the letter references capital gains as being a type of income. “This is odd language” says Lee, “as the Chancellor must know that CGT doesn’t tax income. By definition CGT taxes capital gains. That’s the increase in the value of your investments – and CGT is only charged when you realise those gains by selling your investments – things like second homes, shares, paintings and so on”.

“No one wants to say it but increasing CGT makes good political sense” says Lee, who was himself a tax adviser for 25 years.  “I remember discussing this very point with Sir Edward Troup at a tax conference in 2010.  Back then he doubted that aligning the rates of CGT and income tax would increase the tax take from CGT. I wonder what has changed?”

There are many exemptions and reliefs from CGT and an annual exemption. This means that the first £12,300 of capital gains anyone makes each year is tax free.  This rule simplifies things for the majority who cannot make significant capital gains.

Notes for editors:

1. Mark Lee is a Fellow of the ICAEW and of the CIOT. He is a former tax partner at the accountancy firm BDO and a former Chairman of the ICAEW Tax Faculty.

2. The Tax Advice Network, launched in 2007, operates the FindATaxAdviser.online website and has members all over the UK.

3. In May 2010 George Osborne, Chancellor in the new Coalition Government, announced that he would “seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities. In his Budget on 22 June 2010 he raised the top rate of CGT to 28%.

4. Mark Lee’s subsequent conversation with Sir Edward Troup is recorded on the Tax-Buzz blog entry 5/7/2010: “CGT rules unlikely to change again in this Parliament”.

5. In 2010, Troup was Managing Director of the Budget Tax and Welfare directorate at HM Treasury. He later became Executive Chair and First Permanent Secretary of the HM Revenue and Customs (HMRC) in April 2016. He retired in December 2017, and was knighted in the 2018 New Year Honours.

6. On 13 July 2020 The Chancellor of the Exchequer, Rishi Sunak, asked the OTS to carry out a review of Capital Gains Tax to identify simplification opportunities. The scoping document for the review was published on 14 July 2020.

7. The rate of CGT has changed over time since it was first introduced in 1965. Until 1988 it was fixed at 30%. Then for 20 years CGT was payable at income tax rates, as if it was additional income (but with it’s own set of reliefs and exemptions). It was a Labour Chancellor, Alastair Darling, who reduced the top rate of CGT from 40% (when it was aligned with the then top rate of income tax) to 18% in 2008. In recent years the top rate of CGT has been 28% whereas the top rate of income tax is now 45%.

8. Lee questioned the rationale for reducing the rate of CGT in an article on his Tax Buzz blog on 5/2/2009: Why are capital gains taxed at less than  half the main rate of tax?

 

Inheritance tax receipts fall. Does this make a wealth tax more likely?

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Inheritance tax (IHT) seems to worry far more people than are ever likely to pay it. The latest stats reveal why the Government and HMRC may be planning to switch to a wealth tax instead.

The most recent figures available tell us that fewer than 4% of UK deaths resulted in a charge to IHT. And that HMRC received only a little over £5 billion inheritance tax in 2019/20.

Earlier this year an all-party parliamentary group proposed the wholesale reform of IHT and intergenerational fairness. Their main recommendation was to replace IHT with a flat-rate gift tax payable both on lifetime and death transfers. As ever such proposals are easier to accept in theory than they would ever be to legislate.

And let no one assume that a wealth tax would be easy to apply and charge by reference to shares, properties and other assets whose values are ever changing.
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Many of the members of our Network are expert advisers on inheritance tax and related issues. YOU’ll find their profiles by entering inheritance tax in the search bar on the home page of this site

VAT Office tells caller to ring the Tax Advice Network

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When people call our switchboard they are normally put through to whichever of the tax advisers they have chosen from our website.

Around 4.30 today a caller (Tina) was put through to me as my assistant was unable to determine what she required. Tina offered to quote her enquiry number to me. I thought maybe she had called us by mistake. Perhaps our number is very similar to an HMRC office. But no, she had called the number she’d been given by the local VAT office!

(Given the rate at which HMRC are shedding staff at the moment I wonder if the day will come when there are more tax advisers within the Tax Advice Network than left in HMRC?!)

Once we had established what had happened, Tina was equally confused as to why HMRC had given her our number. She thought it was because no one at HMRC was able to resolve her enquiry and they wanted to get rid of her.

This seems unlikely to me. Tina is a bookkeeper for a client in the catering industry and wanted clearance as to whether certain supplies were zero registered. She’d been told to go to a specific page of HMRC website but had been unable to find the relevant contact details thereon. It took me less than a minute to do so. Why had the person she spoke with at HMRC been unable to assist her? Maybe they don’t have access to a computer?

I also questioned whether the clearance facility was really what Tina wanted. I suggested that if she wanted help with a formal letter or anything that involved more than a few minutes on the phone, she should speak to one of the VAT specialist members of the Tax Advice Network.

I’m not complaining – indeed I’m thrilled – that HMRC are directing people with complex tax problems to the Tax Advice Network. Thank you to whoever it was and by all means do it again.