His Majesty’s Revenue and Customs (HMRC) has issued stern instructions to crypto users that they must declare and pay their taxes on digital assets within a strict timeframe or face the consequences. The tax office guidance on how to go about declaring and paying taxes on their crypto holdings published on Nov. 29 starts with a clear warning:
“If you do not contact us to declare your unpaid tax, you could be liable to additional interest and penalties.”
HMRC specifies the amount of time users are given to pay outstanding taxes will depend on why they didn’t pay up earlier. It suggests taxpayers choose from three options and confess whether they didn’t take enough care, evaded paying deliberately, or intended to pay but somehow failed.
Users who intended to pay but somehow failed will owe the HMRC the payment for four previous years. The less careful taxpayer will have to pay for the last six years, and the deliberate tax evader must pay taxes on all crypto stored for up to the previous 20 years.
Related: How to manage crypto losses on tax returns in the US, UK and Canada
The tax service also reminded taxpayers of the interest, charged daily from the date tax is due until it is paid. As an additional tax on previous-year crypto holdings would now be classified as late, it automatically suggests the interest due. A failure to include the correct interest will result in a rejection of disclosure.
After disclosing unpaid taxes, users will get payment reference numbers and 30 days to remit the entire sum owed. The disclosure must include “exchange tokens,” such as Bitcoin, as well as any non-fungible tokens (NFTs) and “utility tokens.”
HMRC treats crypto similarly to most other financial assets and thus subjects it to Capital Gains Tax (CGT). The current CGT rates range from 10% to 20%, depending on the individual’s income and gains. You can read more about U.K. tax rules here.
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