Crypto Nudge III – HMRC’ll be back

Introduction

HMRC has again issued another phalanx of nudge letters to individuals.

Of course, this isn’t new territory for HMRC’s nudge team. It is actually the third time they’ve sent such letters to those they suspect of not properly disclosing, and paying, their crypto related taxes.

These letters start with the opening salvo:

“Our records show you have disposed of cryptoassets. However, you haven’t declared everything correctly. This means you may have tax to pay.”

Very much to the point.

What is a nudge letter?

First, what is a nudge letter?

Nudge letters were created in the laboratory of the Behavioural Insights Team. The letters are designed to pull on anxieties that a person might have (justifiably or not) regarding their tax affairs.

The letters ‘suggest’ that  taxpayers should check their tax affairs for errors or under-declarations.

A bit like Arnie might ‘suggest’ that he “needs your clothes, your boots and your motorcycle”.

Of course, they are not simply mail merge exercises to the population at large. They are based either on some data set received by HMRC (and the taxpayer is on it) or it is targeted at a specific area where non-compliance has been identified as being high.

Of course, if they have the data, then why not just open an enquiry and assess the tax they believe to be due at the end of it?

The thing is, it’s not quite as simple.

Any intervention, particularly without all the facts will take time and resources, neither of which HMRC have an awful lot to spare at the moment, and might not yield anything.

But what if there was a way of persuading the taxpayer to come clean and make a disclosure all on their own and pay the tax, interest and penalties straight away?

For the cost of a stamp?

This is where the nudge letter comes in.

Over the last decade or more, these have been issued to all kinds of different taxpayers – marked by some particular activity (plumbers, dentists) or some kind of asset (foreign property, crypto).

For more on nudge letters, please see here:

Crypto Nudge III – HMRC’ll be back

Like the aforementioned Terminator, as the sequels come thick and thin, then the foe becomes stronger and stronger.

A bit like a nudge letter.

Unlike other nudge letters, this one goes further than simply asking for consideration of whether any tax is owed.

Instead, the tone becomes more forceful:

“If you’re satisfied you don’t owe any cryptoasset-related tax, please contact us with reasons why your activities haven’t resulted in tax due.”

First things first.

There is no need to statutory reason to do this. It is not an enquiry and there it is not a formal information notice. Anything you send is voluntary and you certainly don’t need to confirm you’re tickety boo.

But what is a Terminator if it doesn’t at least have some kind of sharp, pointy, stabby, thing to wield and extract information.

HMRC is no different.

“Please provide this information within 60 days to avoid HMRC opening a compliance check.”

So, although your response is voluntary, HMRC implies (think sharp, pointy, stabby) that failure to respond will lead to a formal enquiry.

Also, it strongly suggests they believe they have evidence that has you bang to rights as well.

What to do next?

There are a number of options here and that will depend on the relevant facts of the case. Even those who are relatively happy they are ship shape are likely to want to consider whether they take HMRC’s option to confirm that there is nothing to see.

Those who have not fully disclosed will have a different set of considerations, including whether they should make a formal disclosure to HMR.

Make sure you get proper advice. There are loads of good professionals out there who can assist.

Any queries, please get in touch.

Hasta la vista, PEPE.