HMRC Cyber-crime Team Data-Mining Your Bitcoin

HMRC is touting for a supplier to develop a blockchain analytics tool so it can track people using cryptocurrencies. The taxman’s has budgeted £100,000. They told that they “looking for vendors to showcase their capabilities by demonstrating their expertise in the field of crypto-asset tracing“.

Daniel Phillips at online crypto-currency ezine Decrypt reported that “HMRC will use the tool to link blockchain transactions with the real-world identities of those involved, similar to the functionality already offered by blockchain analytics firms”. An HMRC spokesperson said: “The nature of tax compliance is changing and HMRC is continuing to develop its capacity and expertise in order to respond to the emerging threats to the tax system, including via crypto-assets. The tool will support intelligence-gathering methods to: identify and cluster crypto-asset transactions into linked transactions; and identify those linked to crypto-asset service providers.”

The tool is intended to analyse multiple different blockchains including tracking transactions and value fluctuations across: Ethereum; Ethereum Classic; Bitcoin; Bitcoin Cash; Ripple; Tether; Litecoin; and the privacy-oriented blockchains including Monero; Zcash; and Dash.

UK tax residents are taxable on capital gains made on the disposal of crypto-assets. Additionally, HMRC are aware that many traders (particularly those operating online) are increasingly accepting crypto-currencies as payment for goods and services. The taxman’s traditional analysis of bank accounts would not pick up those transactions: if they were omitted from the trader’s accounts. HMRC therefore aim to get this information as part of their drive against tax evasion.

What does this mean for me?
If you have holdings in crypto-assets (whether you trade or hodl), or if you accept payments for goods or services by way of crypto-currencies, it seems inevitable that H M Revenue and Customs will get information about it at some point. If you have not reported the transactions to HMRC you would be investigated. In addition to wanting to tax the capital gains, it is extremely likely that HMRC will want far more detailed information about the source of funds held in the crypto-assets. If the crypto-currencies were taken in payment for business supplies, then failing to report that would be tax fraud. Some investigations may be on a criminal basis. You can avoid prosecution and (in a civil investigation) get significantly reduced penalties by making a voluntary disclosure.

How can Lynam Tax Disclosure Experts help me?
Our Tax Disclosure Specialists are highly experienced in managing Voluntary Disclosures to HMRC. We have the training; up-to-date knowledge; specialist skills; and the depth of recent and relevant experience (including cases involving crypto-assets) to handle your disclosure to HM Revenue and Customs properly. We help reduce the stress and get you the best possible result: even if you are already undergoing a Tax Investigation. HMRC’s cyber-investigation teams are dedicated specialists: so you need dedicated experts on your side.

For a free discrete discussion call one of our experts today:
Paul Lynam: 0845 643 9997
Andrew Nutbrown: 07718 778710