Tax authorities double warning letters as exchange data sharing expands under global reporting rules
British crypto investors may still owe taxes even if they haven’t received a warning from HM Revenue & Customs (HMRC), experts caution, as the agency intensifies efforts to track undeclared digital asset gains.
According to the Financial Times, HMRC issued nearly 65,000 “nudge letters” during the 2024–25 tax year — more than twice the number sent the previous year. The letters urge individuals to review past filings and voluntarily disclose crypto profits before facing potential audits.
But tax specialists say the letters are just the tip of the iceberg.
Example of a previous nudge letter sent in 2024. : kc-usercontent
How HMRC Tracks Crypto Activity
HMRC uses a combination of bank data, exchange records and self-assessment forms to flag discrepancies. Even without direct communication, individuals with undeclared crypto income may face retrospective audits, especially as international reporting agreements expand.
Under UK law, both domestic and overseas exchanges serving UK clients must share customer transaction data with HMRC. This oversight will strengthen further when the OECD’s Crypto-Asset Reporting Framework (CARF) takes effect in 2026, granting automatic global data exchange between tax authorities.
Duca explained that taxable crypto events go beyond simple conversions to pounds:
Swaps between tokens
Income from staking, yield farming, or airdrops
Selling or gifting crypto assets
Only purchases with fiat currency and transfers between personal wallets remain exempt.
Complex Calculations and Common Mistakes
HMRC applies a three-tier “spooling” method to calculate capital gains — assessing same-day trades first, then 30-day trades, and finally using an average cost basis for older holdings. For active traders, Duca said, this can quickly become complicated and prone to error without specialized tax software.
“It’s far better to be proactive and report on your activity now, rather than wait for HMRC to pull you up on it,” he advised.
Even decentralized exchanges (DEXs) and cold wallet activity fall under the reporting requirement — a point often misunderstood by retail investors.
If You Receive a Letter
Investors who do receive an HMRC letter should seek professional tax advice immediately, Duca stressed. Accountants can help reconcile transaction histories, correct prior filings, and negotiate payment plans if underpayments are found.
“Using crypto tax software helps generate accurate reports efficiently,” he added. “And if you owe taxes — you’ll need to be ready to settle them.”
Global Tax Trends
The UK’s enforcement push mirrors growing scrutiny in the United States, where lawmakers are debating updates to crypto tax rules. Proposals include exempting small payments (under $300) and clarifying how staking rewards are treated. Coinbase’s vice president of tax, Lawrence Zlatkin, has urged Congress to adopt such exemptions to reduce compliance friction for everyday users.
With international data sharing on the horizon, experts say the era of unreported crypto gains is ending.
“HMRC’s letters are just the beginning,” Duca warned. “From now on, assume your crypto activity is visible — and taxable.”
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.
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