Crypto investors in the UK should be aware that even without receiving a warning letter from HM Revenue & Customs (HMRC), they may still have tax obligations. Recent reports indicate that HMRC has sent out an unprecedented number of crypto-related tax alert letters this tax year.
Last week, the Financial Times reported that HMRC issued approximately 65,000 “nudge letters” during the 2024–25 tax year, marking more than a twofold increase compared to 2023. These communications urge investors to evaluate their tax filings and voluntarily come forward with any undisclosed crypto profits before potential audits unfold.
Despite the lack of a letter, financial experts caution that investors should not make the mistake of assuming they are exempt. Andrew Duca, the founder of the crypto tax firm Awaken Tax, emphasized that it is illegal to bypass reporting cryptocurrency transactions to HMRC, regardless of whether one has been contacted. “The sheer volume of warning letters issued by HMRC should serve as a critical reminder,” Duca added.
To identify noncompliance, HMRC typically cross-references bank statements, exchange data, and self-assessment documents. Any inconsistencies, such as unreported transfers or deposits, could lead to warnings or formal investigations. High-income individuals and investors with substantial on-chain holdings are particularly susceptible to scrutiny, as data sharing between exchanges and regulatory bodies continues to advance.
Example of a previous nudge letter sent in 2024. Source: kc-usercontent
Duca also mentioned that reporting should be proactive; delays may worsen tax responsibilities. Investors should recognize that they trigger tax implications not just when converting cryptocurrencies into British pounds but also when engaging in token exchanges or generating income through mechanisms like staking and yield farming.
To determine gains, HMRC uses a three-tier “spooling” approach, which encompasses immediate trades, transactions within a 30-day timeframe, and an averaged cost basis for older acquisitions. This can complicate matters significantly for active traders, leading to recommendations for specialized tax software to facilitate accurate reporting.
Additionally, if investors do receive an HMRC letter, immediate professional counsel is advisable. Tax specialists can assist in generating correct transaction records and negotiating with tax authorities if discrepancies arise.
“Utilizing crypto tax software helps ensure that you accurately and efficiently compile all your activities,” Duca said. Lastly, if taxes are owed, funds must be set aside in anticipation of payment.
In the meantime, American legislators are also weighing changes to crypto tax regulations, including proposals to exempt minor transactions from taxes and provide clarity on the treatment of staking rewards.
