Do I owe tax on my cryptocurrency portfolio? – TOPNews MEDIA USA

I jumped on the cryptocurrency bandwagon early on for a bit of fun and without particularly high hopes. I have benefited from a price rise post-lockdown and now have a fairly high-value portfolio. I’ve used my holdings to fund some one-off purchases and exchanged between currencies. I recently received a letter from HM Revenue & Customs claiming that I may owe tax. I’m worried I’ve done something wrong. If I have never cashed in my portfolio, am I still liable for capital gains tax on the potential sterling profit on my original investment?

Gary Ashford, partner and chartered tax adviser at UK law firm Harbottle & Lewis, says that in most cases where someone has invested in crypto assets, those “assets” will be subject to capital gains tax (CGT) when sold, if the gain realised is above the £12,300 threshold.

CGT is due as a result of disposal, so if you’ve made no disposals, no CGT would be due. However, if you have exchanged crypto direct for other goods, or even to acquire new cryptocurrency, then it is likely that you will have made some disposals and potentially triggered CGT.

HMRC’s approach is to apply the same rules as for shares and equities. The tax authority has been securing data in relation to coins and tokens held by individuals from a number of crypto exchanges, and it is this information that it is largely using to identify holders of crypto and sending them letters.

The letter is not a statement that you have done anything wrong, but is a “nudge” to let you know that HMRC is aware you are holding crypto and that if you have made disposals, these are potentially taxable and should be included in your annual tax return. If you do not fill in an annual tax return, you may need to register and request one.

If you have made disposals in earlier tax years, and are out of time to correct an earlier tax return, you may face penalties. Given that many people are unaware that crypto is taxable, it may be the case that the maximum penalty is 30 per cent, which can possibly be mitigated to zero with an early disclosure, or suspended.

However, if someone knew that crypto was taxable, the penalty can be up to 100 per cent of the additional tax, with a minimum penalty of 50 per cent.

Penalties will not be charged if someone has taken “reasonable care”. However this may be tricky to prove, as HMRC could argue that you should always check whether any assets you hold are taxable.

The most important thing is to act now. Do not ignore the letter or throw it in the bin. HMRC keeps a record of anyone it has written to, so if they were to investigate at some point in the future, it would be hard for a recipient of a nudge letter to claim ignorance.

Will I have to repay lockdown business grants?

Last year at the height of the pandemic I claimed multiple grants through the self-employed income support scheme (SEISS) to help keep me and my family afloat while my business was unable to trade as usual. When lockdown eased, my business had started to recover and I stopped claiming the grants. I am currently completing my tax return for the financial year 2020-21. Will I need to repay any of the SEISS grants that I claimed and, if so, how much and when?

Zena Hanks, partner in the private wealth team at Saffery Champness, says you were right to make the claims, as this was exactly the intended purpose of the SEISS grants — to support businesses and individuals struggling during the pandemic. You were also correct to cease claiming the grants at the point it was clear your business had recovered and you no longer needed the support.

The official guidance, available on the HMRC website, says that the requirements that needed to be met for grant numbers 1 and 2 were less strict, needing only that the business be “adversely affected”. Claimants for all grants had to state that they were suffering from reduced activity, capacity or demand compared with what could have been reasonably expected.

Whether you need to repay SEISS depends on your circumstances. For example, if your turnover increased during one of the qualifying periods, you may need to repay the grant. However, if it increased due to you landing an unforeseen contract or there were exceptional trading conditions that gave you a late boost in profits, then you probably don’t have to make a repayment.

From what you say about your circumstances, and the probable timings, it is possible that there is no requirement to repay the amounts you claimed, but a thorough review should be undertaken to confirm this.

For the later grants, if any were claimed, the requirements were much stricter. A repayment of the grants may need to be made if the business was not affected by the pandemic, or if the figures reported in your claim were incorrect and resulted in a higher award than should have been the case.

Consider this example given by HMRC. “A publican has fewer customers due to government restrictions which reduces their takings. They reasonably believe this will significantly reduce trading profits. They are eligible to claim the fifth grant.”

And this: “An electrician is still trading but has had increased costs due to buying masks, cleaning supplies and screens. They are not eligible for the fifth grant because increased costs were the only impact on their business and they continued to trade as normal.”

In terms of reporting and payment of the grants, depending on the circumstances, the repayment of some or all of the grant can be done via your self assessment tax return. For the 2020-21 tax year this would result in a payment of the grant alongside any tax, being due on January 31 2022. HMRC has however announced that it is waiving late filing and payment penalties for self assessment taxpayers until the end of February.

In addition to this, the government guidance also provides an option to tell HMRC if you want to voluntarily pay back some or all of the grant you received. In some cases, HMRC are contacting taxpayers regarding overpayments of the grants so it’s better to get ahead of HMRC.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.