Understanding UK Crypto Tax Filing for 2022/23

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
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 >>>

MTD quarterly submissions

All unincorporated businesses and individual landlords are due to enter the MTD for income tax (MTD ITSA) regime on 6 April 2023. This single start date for everyone is due to the switch from the current year basis to the tax year basis as we explained on 5 August 2021.

There is a chance that MTD ITSA will be delayed, or deferred for some taxpayers, as many issues relating to landlords and partnerships have not been bottomed out, but don’t count on that.

Those mandated into MTD ITSA will have to make quarterly submissions of the totals digitally recorded during the quarter by the accounting system of:

  • sales income for each trade
  • purchases/expenses for each category

The categories of expenses are expected to be those currently required in the self-employment section (form SA105) and property section (form SA103F) of the SA tax return. When the final MTD ITSA regulations are released (expected next month) we will know exactly what those expense categories are.

The quarterly submission is essentially a rough and ready profit and loss account. The taxpayer (or their tax agent) is not required to declare that the quarterly submission is a complete or correct reflection of the net or gross income of the business, as the submission does not contain an accuracy statement.

Thus, the quarterly submission is not a 3-month set of accounts, it is a data dump to prove to HMRC that the business is keeping some near-to-real-time digital records.

The HMRC computer will take the figures reported in the quarterly statement and reflect back to the taxpayer an estimate of the tax they will need to pay for the year. This may be a completely nonsense figure as the quarterly submission could be full of mistakes and won’t include any capital allowances or other tax reliefs.

Any errors or mistakes included in the quarterly submissions should be corrected in the end of period statement (EOPS), which will include a declaration of accuracy, just like the SA tax return.

Reporting SEISS grants

HMRC has finally produced some guidance on how to report the first three SEISS grants on SA tax returns for 2020/21. But this guidance only directs you to the notes to the SA returns, so you need to dig through several documents to find all the answers you need.

The SEISS grants are reported for the tax year in which they are received, and must be included in these boxes on the various different SA returns:Except in the rare case where a partnership received the SEISS grants directly rather than the partners, the SEISS grants should be excluded from the turnover of the business.

The taxpayer must report the total amount of SEISS grants received in the tax year, less any amounts which have been repaid to HMRC.

Some tax software pre-populates the tax return with the amounts of SEISS grant paid to the taxpayer. These figures are apparently provided automatically by the SEISS API which connects the tax software to HMRC’s systems.

If your tax software claims to pre-populated the tax return with the SEISS totals, you need to treat those figures with utmost caution. Many SEISS amounts have been out be a factor of 100, and in some cases the SEISS grant is reported as zero when the taxpayer has in fact received some grant.

It may be easier to ask your client directly for proof of the SEISS grants they received during the tax year.

Judges endorse the idea of seeking expert tax support

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.

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

And tax advisers with any specialist expertise are welcome to join the Tax Advice Network.

Family Investment Companies

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.

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.

An Ethics Quality Bar for All Tax Advisers

The Tax Advice Network welcomes a new paper published by CFE Tax Advisers Europe. The paper looks at ways to ensure ethical professional judgment across all tax advisers in Europe, irrespective of their status.

The paper is titled: Professional Judgment in Tax Planning – An Ethics Quality Bar for All Tax Advisers – Tax Advisers Europe.

It is Inspired by the central question of ‘if it is legal, is it acceptable?’, and proposes an ethics quality bar based on five key questions that CFE believes all tax advisers should reflect on when preparing tax advice.

The idea being to encourage tax advisers to achieve an appropriate balance between the rights and obligations of taxpayers, avoiding abusive tax planning.

The five questions are:

1 – Is there a genuine economic purpose for the tax planning apart from achieving a tax benefit, either now or in the future?

2 – Are the arrangements artificial or manipulated in a form-over-substance approach to achieve a tax benefit?

3 – Is the tax planning based on interpretations of applicable international and national tax law which are likely to be considered credible by the courts and informed stakeholders?

4 – Would the arrangement be implemented if the relevant tax authority had a full overview of every aspect of the planning?

5 – Are there any other potential reasons why the tax planning could be perceived by policymakers and the general public as abusive?

As has been apparent for some time, the world has changed and official attitudes to tax avoidance (vs tax evasion) have evolved.

Chairman of the Network, Mark Lee notes that “The proposed CFE tax quality bar seems to supplement rather than replace, contradict or overrule the rules on Professional Conduct in Relation to Taxation (PCRT). The Tax Advice Network already requires members to confirm that they abide by the rules on PCRT that have been in force since 2017. These rules are also compulsory for the members of the main accounting and tax bodies who publish and update PCRT”.

The Buyer’s Guide to choosing a Tax Adviser

Are you worried about tax or something to do with your tax position? Have you had a nasty letter from the tax office? Do you want to know how to reduce your tax bills? Or maybe you want help with some tax planning to ensure you don’t pay any more tax than you legally need to do.

Mark LeeMy name is Mark Lee and I am the Chairman of the Tax Advice Network (founded in 2007). Before that I was Chairman of the Chartered Accountants’ Tax Faculty.

I don’t give tax advice myself anymore but after more than 20 years in practice as a Chartered Accountant and Chartered Tax Adviser I can help you. I am well aware how tough it is for people with tax problems to understand how to find the right tax adviser for them, their tax issue and their pocket.

This buyer’s guide will help you to make the right choice whether you have a tax headache, want to do some tax planning or need help dealing with the UK tax authorities (HMRC).

Adviser insights: Q&A with Doug Sinclair – Tax investigations and tax disclosures expert

How long have you been a tax adviser Doug?
I have been working in tax for over 30 years.

Doug Sinclair

How did you come to specialise in tax investigations and tax disclosures?
I started my career in tax on 13 July 1987 at my local tax office in Bromley as a filing clerk. Coincidentally a few years later another member of the Tax Advice Network, Bill Stevenson became the District Inspector. I ended my career with HMRC in February 2001 to join the profession and since then have acted for clients who are either under investigation or who wish to make a disclosure.

What are the most common mistakes you see made by non-specialists in your area of tax?
The most common misunderstandings that I see relate to providing every document that HMRC has requested. Whilst this may be correct, when I ask a non-specialist why they provided a particular document, they often say because HMRC asked for it. HMRC will often use the premise “if you don’t ask, you don’t get.” Another issue I see is where non-specialists do not understand the concept of deliberate behaviour and the non-tax issues which are associated with it.
What are the most valuable issues on which you have given advice?
Category of behaviour – there are so many issues it can affect from time limits, penalties and non-tax issues (naming & shaming, monitoring of tax returns etc.).
What differences might you expect to see in the coming year that could impact those issues?
I suspect HMRC will continue to assert deliberate behaviour on a range of matters, as the Treasury will need to collect vast sums of monies.
What has been your worst experience with HMRC?
I couldn’t possibly comment……. but speed of response to certain disclosures has been an issue.
What has been the most rewarding thing you have done from a tax perspective?
The field of investigations and disclosures often result in a very close bond between advisor and client and it is pleasing to assist in saving a business from being wound up or saving a family relationship from dealing with the delicate financial issues which have arisen.
What is your top tax tip for general practitioners?
Don’t jump in to a client problem without sitting back and reflecting. If it’s outside your comfort zone, don’t be afraid to ask someone who has expertise in the subject – the client will thank you in the long run.
If you hadn’t gone into tax what would you like to be doing now?
When I was younger I played rugby for Anglo Scots U21’s and wished I had gone into a sports professional role, possibly a coach.
What do you enjoy doing in your spare time – away from the world of tax?
Relaxing over good food and fine wine, which is now enjoyed at home.

New service: Find A Tax Inspector

[Sorry but this was just an April Fool shared on 1 April 2021]

We have expanded our service offering. The Tax Advice Network now enables accountants to Find A Tax Inspector (FATI).

Using FATI means you can get directly in touch with the person you need at HMRC whether by phone, email or web chat.

Until now you would struggle if you wanted to reach someone specific. Your starting

point might be the main HMRC contact page on the web.

This currently lists 139 different contact facilities and options. These range from ‘Agent dedicated’ phone lines (at the start of the alphabet) through to the ‘Wealthy team’ at the end.

To create the new FATI we’ve used leaked HMRC internal records to identify the best phone numbers, web chat links and direct email addresses for all HMRC compliance managers, and subject matter experts.

And if you add in a taxpayer’s UTR or a business tax ref to your search you will be able to reach the official responsible for the case.

This is similar to the way our long established Find A Tax Adviser website works, where you can  find tax advisers by reference to specialist topics but can also add in your postcode to find which tax advisers are based closest to you.

You can use the FATI facility via our website here: https://www.taxadvicenetwork.co.uk/find-a-tax-inspector/

Unreliable HMRC guidance

How reliable is HMRC guidance for agencies as regards the new IR35 changes that take effect from next month (April 6th)? “Not very” it would seem.

We are indebted to one of the longest standing members of our Network, David Kirk, for his analysis of HMRC’s webinar on 5th March 2021.

David, who is widely acknowledged as an expert in the context of IR35, was aghast at the amount of misleading information in the webinar.

It was aimed at ‘fee-payers’ – those normally responsible for operating PAYE and deducting and paying over National Insurance contributions, which will typically be agencies.

David’s analysis lists 25 errors in the webinar and the subsequent Q&A. In each case he explains the problem and provides clarification and/or the correct answer.

Here’s just one example:

At 23:06. ‘Once the client has decided whether or not the rules do apply, they must set out that decision in a status determination statement, or SDS.’ Wrong. There is no legal requirement for this, and where the client pays the intermediary directly there are no legal consequences for failure to do so.

If this is something you need to know more about then please contact David directly through his profile here >>>>