Understanding What Happens If You Don't Report Cryptocurrency On Taxes

7 Dec 2023 by Harry Newman 3 min read

Failure to report cryptocurrency transactions on your taxes in the UK or any country that taxes crypto can lead to significant legal and financial repercussions.

HMRC and other tax authorities continue to tighten their grip on cryptocurrency taxation, so understanding what happens if you don't report cryptocurrency on taxes is crucial for compliance and avoiding potential penalties.

Understanding The Government's Stance on Cryptocurrency

HMRC treats cryptocurrencies as property or assets, taxable events occur when selling, trading or spending cryptocurrencies, this triggers Capital Gains Tax or Income Tax.

All cryptocurrency transactions must be reported, and any gains or income must be declared on tax returns.

You can view the UK Government website regarding taxation information on crypto assets here.

Refer to your relevant government website to find out information on your country's tax laws for cryptocurrencies.

What Happens If You Don't Report Cryptocurrency On Taxes

If you do not report cryptocurrency on taxes, you may face significant penalties, this includes fines for inaccurate or late reporting and interest on unpaid taxes.

Deliberate evasion can lead to even higher penalties, the exact amount depends on the amount of tax unpaid amongst other factors.

Non-reporting of crypto assets significantly raises the risk of an HMRC audit; they use advanced data analytics to identify discrepancies and non-compliance.

An HMRC investigation can be intrusive and extensive, potentially looking over financial records going back several years.

Moving around large sums of cryptocurrencies and withdrawing large amounts into fiat can raise suspicions and is advised to report this on your taxes when required.

In severe cases, if you don't report cryptocurrency on taxes correctly you could face criminal prosecution for tax evasion.

This results in a criminal record, hefty fines and in some cases imprisonment.

HMRC has the authority to seize assets in order to recover unpaid taxes, more on that can be found here.

The long-term repercussions of not reporting cryptocurrency on taxes can negatively affect your credit rating.

The process of having to pay back any unpaid taxes and pay existing taxes can have lasting impacts on personal finances and investment capabilities.

How To Be Tax Compliant

Keep a good practice of maintaining accurate records of all cryptocurrency transactions, including dates, amounts in GBP, transaction types and parties involved.

It is hard to say what the best crypto tax software is, ultimately the choice in the platform is up to the user, each one offers its own set of tools to make crypto tax reporting an easier process.

Websites such as Koinly help users create tax reports on their cryptocurrency transactions.

Koinly is a free crypto tax software platform that can give you tax reports in 20 minutes and uses algorithms to calculate your gains and losses to generate a tax report for you.

You can then export this in different formats to provide to your accountant or tax company.

Final Thoughts

Keeping up to date with the new relevant rules and guidelines on cryptocurrency tax is important, especially in an ever-evolving market.

Not reporting your cryptocurrency transactions can land you in a lot of trouble which could have been easily avoided.

There are services available to help users produce easy-to-understand tax reports on their cryptocurrency transactions, Koinly is one example and will streamline the process for you.

FAQ

What happens if you don't report cryptocurrency on taxes?

If you do not report cryptocurrency on taxes, you may face significant penalties, this includes fines for inaccurate or late reporting and interest on unpaid taxes.

Deliberate evasion can lead to even higher penalties, the exact amount depends on the amount of tax unpaid amongst other factors.