Investors in cryptocurrencies like bitcoin should not forget the tax consequences of their digital wallets, says HMRC.

HMRC regularly boosts tax receipts by nudging taxpayers who are suspected of filling out their tax returns incorrectly or failing to submit a return when one is due. The warning, sent as a ‘nudge’ letter, often stems from investigations HMRC have undertaken, using their extensive powers to demand information from institutions and companies. Nudge letters are also sent out following mandatory reporting by overseas institutions or media revelations, such as the 2021 Pandora Papers.

Each round of nudge letters addresses various topics from short-term property letting (e.g. Airbnb), interest from foreign bank accounts and earnings from sales made through online marketplaces (e.g. eBay). The latest nudge campaign has focused on investors in cryptocurrencies, such as bitcoin and ether following HMRC seeking data from crypto exchanges.

The cryptocurrency nudge letters follow a similar pattern to other nudge letters:

• The introductory paragraph says, ‘We’re writing to you as our records show you have disposed of crypto assets. However, you haven’t declared everything correctly. This means you may have tax to pay.’
• The letter does not reveal the information that prompted the inquiry or which tax years are involved. This is a deliberate tactic aimed at encouraging the taxpayer to disclose any unreported income or assets of which HMRC is unaware.
• The letter offers a range of options for reporting unpaid tax, including amending an existing tax return where the time limit has not been exceeded (e.g. 31 January 2025 for 2022/23 returns). If the taxpayer thinks HMRC is incorrect and no additional tax is owed, they must still respond with information supporting their position.
• There is a deadline for responding, which is typically 30 days for nudge letters, although 60 days have been given for letters enquiring about cryptocurrency.

Ignore a nudge letter at your peril. HMRC will issue a follow-up and could start a formal investigation. As with all tax planning, you should take timely professional advice and never think you can hide information from HMRC. In the world of AI, HMRC is becoming ever more efficient at finding potential tax receipts worthy of nudging.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

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