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A copy of the letter which has now seen by Prysm Financial, states “We have information that indicates you hold or have held, investments in crypto assets (also known as cryptocurrency)” and prompts the recipient to review their Capital Gains Tax (CGT) position.

It was reported back in August 2019 that crypto exchanges that do business in the UK, including Coinbase, eToro and CEX.IO had received letters from HMRC requesting customer data and transaction histories. HMRC regularly gathers data from a range of information sources using powers provided by Parliament.

TAX ON CRYPTOCURRENCY

Despite HMRC previously suggesting that some cryptocurrency transactions may be exempt from tax as gambling profits, in December 2018, HMRC clarified that for most investors, cryptocurrency will be subject to CGT at either 10% or 20% depending on whether the investor is a basic or higher rate taxpayer.

This means individuals must calculate the gain or loss whenever they “dispose” of a cryptocurrency at the sterling equivalent value, on the day of disposal.

HMRC further clarified that a “disposal” arises when: –

• Selling cryptocurrency for money (e.g., GBP, USD, EUR)
• Exchanging cryptocurrency for a different cryptocurrency (e.g., exchanging Bitcoin to Ripple)
• Using cryptocurrency to pay for goods or services
• Giving away cryptocurrency to another person

Most cryptocurrency investors would benefit from an annual CGT tax free allowance of up to £12,300, however this allowance is accumulated with any other disposals such as stocks, shares or property.

In certain circumstances, for example a day-trader involved in high-frequency buying and selling of cryptocurrency, mining or airdrops, may be considered as trading and will therefore subjected to Income Tax.

Overseas businesses without a UK base, who wish to hire their first UK employees can ensure that their staff are paying their national insurance and tax through a DPNI scheme.

DPNI SCHEME OVERVIEW

Overseas employers with no base in the UK are unable to set up a UK payroll for their UK-based employees, meaning that the employees are responsible for this. However, the process of setting up a UK payroll can be complex and such individuals are usually required to use a PAYE Directs Payments procedure (DPNI) scheme, if eligible. Registering for the DPNI scheme ensures the direct payment of national insurance and tax contributions to HMRC

WHAT THIS MEANS

Although all UK residents are obliged to pay income tax and national insurance, it is usually the responsibility of the employer to deduct national insurance contributions from their employee’s salary, however, this is not the case for employers who are based overseas (with no base in the UK) – meaning that the responsibility falls on the employees. However, such employers should understand the DPNI schemes so that they can advise their employees based in the UK and eliminate any anxiety they may be having around ensuring their compliance with tax and national insurance regulations. Employers with no base in the UK are also not responsible to set up auto-enrolment pensions, however, should an employer wish to provide a pension or benefits, they can voluntarily opt for a standard PAYE scheme.

REGISTERING FOR A DPNI SCHEME

Checking eligibility for a DPNI scheme as well as registering for it can be a lengthy and complex process as various requirements must be filled – which can take up to 2 months to complete. The complexity involved in setting up a DPNI scheme will vary depending on where an employer is based as well as if any other income is generated from assets and activities (both in the UK and overseas). All required checks are in place for HMRC to confirm that the employees are required to pay national insurance in the UK and that they are paying the right level of tax.