UK crypto investors could face tax charges even in the event that they haven't received warning letters from HM Revenue & Customs (HMRC), because the agency steps up efforts to trace undeclared income from digital assets.
Last week the Financial Times revealed that HMRC issued almost 65,000 “nudge letters” within the 2024-25 tax 12 months, greater than double the number the 12 months before. The letters ask investors to review their records and voluntarily declare crypto-related profits before possible audits begin.
However, tax experts warn that investors who haven’t received a letter mustn’t assume they’re within the clear because of the agency's increasing use of stock market data and international reporting agreements.
“Not reporting cryptocurrency transactions to HMRC is illegitimate, no matter whether you could have already been contacted,” Andrew Duca, founding father of crypto tax platform Awaken Tax, told Cointelegraph. “Even if you happen to haven’t received a warning letter, the undeniable fact that HMRC has issued so many this 12 months should function a wake-up call,” he added.
Duca identified that HMRC typically detects breaches by comparing bank records, stock market data and self-certification forms. Discrepancies akin to undeclared deposits or transfers can trigger letters or formal investigations.
Higher earners and investors with large on-chain portfolios are more likely to be particularly targeted as data sharing between exchanges and regulators increases, he said.
Example of a previous nudge letter from 2024. Source: kc-usercontent
HMRC is tightening crypto supervision
Exchanges operating within the UK and people serving UK customers abroad are required by law to offer transaction data to HMRC. With the entry into force of the OECD's Crypto-Asset Reporting Framework (CARF) in 2026, the agency can have automatic access to information from global trading platforms.
“It is much better to be proactive and report in your activities now than to attend for HMRC to bring it to your attention,” Duca said.
He noted that crypto activities change into taxable not only when digital assets are converted into kilos, but in addition after they are exchanged between tokens or generate income through staking, airdrops or yield farming. The only exceptions are fiat currency purchases or transfers between personal wallets.
To calculate profits, HMRC uses a three-stage “spooling” method. This includes first evaluating same-day transactions, then transactions inside a 30-day window, and at last using a median price for older purchases. For energetic traders, this process can change into very complex and Duca recommends using specialized tax software designed for crypto reporting.
What to do if you happen to are contacted?
Duca said investors who receive an HMRC letter are best advised to hunt skilled advice immediately. Specialist accountants can assist prepare accurate transaction reports and negotiate with the tax office if an underpayment is discovered. Failure to reply may end in penalties or further investigation.
“Using crypto tax software may even aid you create accurate reports on all of your activities as accurately and efficiently as possible,” said Duca. “At the top of the day, you could have to be willing to pay. If you owe taxes, you could have to pay them.”
Duca added that decentralized exchanges (DEXs) and cold wallets are usually not exempt from HMRC reporting requirements. “You are legally required to report on all DEX transactions, cold wallet activity and hot wallet transfers,” he said.
Meanwhile, senators within the US are considering crypto tax policy updates, including exempting small transactions from taxation and clarifying the treatment of staking rewards.
During a Senate Finance Committee hearing earlier this month, lawmakers debated whether on a regular basis crypto payments should trigger a capital gains tax and the best way to fairly classify income from staking services. Lawrence Zlatkin, vp of tax at Coinbase, called on Congress to pass a de minimis exemption for crypto transactions under $300.
