All you need to know
Hiding crypto gains from HMRC can turn profitable trades into expensive mistakes. Many UK crypto traders don’t realise they’re breaking tax law by not reporting gains.
The penalties can be severe - much worse than just paying the original tax owed. HMRC has new tools to track down unreported cryptocurrency transactions, and can now track crypto transactions through data sharing with exchanges and advanced analytics.
What happens if you don’t report crypto gains in the UK depends on several factors, but none of them are good. Failing to report crypto taxes is a violation of tax law in the UK. It’s crucial to understand tax in the UK when dealing with crypto assets. In this article, we’ll cover the penalties, consequences, and steps to get back on track with HMRC.
What Does It Mean to Not Report Crypto Gains?
Not reporting crypto gains means you made a profit but didn’t tell HMRC about it, and failed to report crypto transactions as required. This happens when you sell, trade, or dispose of cryptocurrency for more than you paid.
Selling, trading, or disposing of cryptocurrency is considered a taxable event, and each crypto transaction must be reported. When you sell crypto or sell crypto assets, you may realize a capital gain that must be reported to HMRC. You’re legally required to declare this gain on your Self Assessment tax return. Many people think crypto-to-crypto trades don’t count—they’re wrong.
Even small crypto transactions can be taxable events if they result in a capital gain. Gift transactions and airdrops may also need reporting, depending on their value.
Tax-Free Thresholds: When Do You Actually Need to Report?
Understanding tax-free thresholds is essential for UK crypto investors looking to minimize their tax liability and avoid unnecessary headaches with HMRC. For the 2024-2025 tax year, the annual tax-free allowance for capital gains tax (CGT) is £3,000. This means if your total capital gains from selling, trading, or otherwise disposing of crypto assets stay below this threshold, you won’t owe capital gains tax or need to report these gains on your self assessment tax return.
Income tax is a separate consideration. If you receive crypto income—such as mining rewards, staking income, or payments for goods and services—this is treated as taxable income and subject to income tax. The personal allowance for income tax is £12,570 for the 2024-2025 tax year, but this does not apply to capital gains. Crypto received as employment income or self-employment income must be reported on your assessment tax return, and you’ll need to pay income tax accordingly.
What Penalties Will HMRC Hit You With?
HMRC doesn’t mess about when it comes to unpaid tax. You have a legal obligation to pay taxes on your crypto activities, and if you owe tax or owe taxes, you’ll face an initial penalty of 20% of the unpaid tax amount.
If HMRC thinks you deliberately hid your gains, that jumps to 40%. Penalties can be even higher if you fail to pay tax or paying taxes on time, as interest charges build up daily on unpaid tax from the original due date.
In serious cases, maximum penalties can reach 100% of the tax you owe. There are separate penalties for filing your Self Assessment return late. Submitting your tax returns on time is crucial to avoid additional penalties.
Criminal prosecution is possible if HMRC believes you deliberately evaded tax. The courts don’t take tax evasion lightly, particularly when large sums are involved.
How Does HMRC Actually Find Your Crypto Activity?
HMRC has data sharing deals with major UK and international exchanges, specifically looking for information on crypto assets. They automatically receive information from overseas tax authorities too.
Your bank transactions get monitored for large crypto-related transfers. They even check social media for lifestyle that doesn’t match declared income.
Whistleblower reports from business partners or employees can trigger investigations. Advanced computer systems spot suspicious transaction patterns automatically.
Don’t assume your crypto activity is invisible - it probably isn’t. One trader I know thought he was clever using multiple exchanges, only to discover HMRC had tracked every transaction. Crypto investors should be aware that their crypto asset transactions are visible to HMRC.
What Back-Taxes and Interest Will You Owe?
You’ll pay full Capital Gains Tax on all unreported profits. If you fail to report, your crypto tax bill and capital gains tax liability can increase significantly. Interest gets calculated from when your Self Assessment was originally due.
If HMRC thinks you’re trading as a business, you might owe Income Tax instead. Miscellaneous income from crypto activities, such as mining or receiving crypto as payment, may also be subject to tax. National Insurance contributions could apply to trading profits too.
Currency conversion calculations are required for foreign exchange gains, including when converting crypto to fiat currency, and you must use the fair market value at the time of each transaction for tax purposes. Complex DeFi transactions might need professional valuations - at your expense. It’s important to prepare a capital gains tax summary for each tax year, and consider how to offset gains or offset capital gains with losses in the same tax year or across different tax years to reduce your overall liability.
The total bill often shocks people when they finally add it all up. The tax burden and tax implications of failing to report can be severe, so it’s crucial to understand these for tax purposes. Furthermore, the interest component can be substantial if several years have passed.
Can You Still Come Forward Before They Find You?
Yes, and you should seriously consider it. The Contractual Disclosure Facility lets you confess with reduced penalties.
Penalties typically drop to 10-30% instead of the standard rates. However, you must make full disclosure of all unreported crypto activity.
Professional help is strongly recommended for complex situations. Time limits apply, so it's better to act quickly before HMRC starts investigating.
Voluntary disclosure almost always works out cheaper than getting caught. Additionally, it removes the constant worry about an unexpected investigation.
How Can You Sort Out Your Crypto Tax Mess?
Start by gathering all your transaction records from exchanges and wallets. Calculate gains and losses for each disposal using the right methods.
Consider same-day and bed and breakfast rules for share matching. File amended returns for previous years if necessary.
Set up proper record-keeping systems for future transactions. Get professional advice for complex situations or large amounts.
Don't try to wing it if you're dealing with serious money. The rules are complicated, and mistakes can be costly.
The Bottom Line
Not reporting crypto gains puts you at serious financial risk. HMRC's detection methods get more sophisticated every year.
The voluntary disclosure route offers much better outcomes than waiting. Taking action now protects you from much larger penalties later.
If you're struggling with crypto tax calculations or Self Assessment requirements, Pie is the UK's first personal tax app designed to help working individuals handle their tax obligations. As the only self assessment solution offering integrated bookkeeping, real-time tax figures, and expert advice, Pie can help you stay on top of your crypto tax responsibilities before they become a costly problem.
