The UK tax authority has intensified scrutiny of cryptocurrency investors, sending 81,000 warning letters over the past 12 months, accounting firm UHY Hacker Young reported on August 20. The accounting group obtained these figures through a Freedom of Information request. The total number of letters represents a 25% increase compared to approximately 65,000 letters sent the previous year.
These letters, commonly referred to as "nudge" letters, offer recipients a chance to disclose unpaid taxes before Her Majesty's Revenue and Customs (HMRC) initiates a formal investigation. The recent uptick continues a trend of sharp increases from the 27,714 letters sent in the 2023–24 tax year. HMRC's previous campaign, which distributed 65,000 letters, already more than doubled the annual figure from the year before.
UHY Hacker Young partner Nila Chauhan attributed some of the non-compliance to investors misunderstanding complex rules or believing the authority cannot track their transactions. Chauhan stated:
"There is a perception among tax authorities that cryptocurrency investment involves a high incidence of tax evasion."
The UK's tax system for cryptocurrency generally distinguishes between returns from personal investment and activities taxed as income.
Cryptocurrency Swaps May Incur Tax Liabilities
Many investors understand that selling cryptocurrency for sterling can result in taxable gains, but swapping one digital asset for another may also be considered a disposal. Spending cryptocurrency on goods or services and transferring tokens to another person can trigger similar liabilities. The taxable amount typically depends on acquisition cost, disposal value, and applicable deductions, as outlined in the general cryptocurrency taxation provisions.
Income generated from crypto lending, staking, or other activities may fall under separate income tax rules depending on the transaction's nature and the investor's circumstances. Chauhan noted that some individuals also mistakenly believe using a foreign exchange exempts them from UK obligations. UK residents are generally liable for tax on worldwide income and gains, including qualifying income earned through offshore platforms.
Changes scheduled for April 2027 will simplify certain decentralized finance transactions without removing taxation on their economic gains. Under the planned system, qualifying crypto loans and automated market maker arrangements will be treated on a "no gain, no loss" basis until actual realization. The revised approach to crypto lending and liquidity pools is expected to affect around 700,000 individuals.
Global Reporting Extends HMRC's Reach
Cryptocurrency service providers operating in the United Kingdom are required to collect identifying information and transaction summaries under the Cryptoasset Reporting Framework. Their initial reports, covering transactions from 1 January to 31 December 2026, must be submitted between 1 January and 31 May 2027. The framework mandates reporting on users who are tax residents of participating jurisdictions.
International information exchange will also provide HMRC with data on UK residents using providers in other participating jurisdictions. The agency's guidance on the Cryptoasset Reporting Framework indicates foreign providers will report information on UK residents, reducing opacity associated with offshore platforms. UHY expects 52 jurisdictions to supply data in 2027, with an additional 15 in 2028.
The expansion of tax reporting is part of the UK's broader efforts to oversee cryptocurrency activity while developing new rules for regulated businesses. In April, the Financial Conduct Authority (FCA), alongside HMRC and regional law enforcement, conducted raids on eight sites suspected of illegal peer-to-peer trading, with evidence from these inspections forming the basis for a number of ongoing criminal investigations.
