Keeping Accurate Cryptocurrency Records
Keeping accurate cryptocurrency records is a requirement of anyone due to send a self-assessment tax return to HM Revenue and Customs (HMRC). An individual must retain their records for a minimum of 22 months after the end of the tax year the tax return is for. A business must keep their records for 5 years. That being said, many long-term crypto holders may need to keep records for longer depending on when they plan to sell their assets. This is because you will need to accurately calculate the capital gain using the correct base cost of each asset. HMRC can charge you a penalty if your records are not accurate, complete and readable.
Many cryptocurrency investors we speak to fall into the same trap: they do not keep adequate records. Before they know it, they have been buying and selling cryptocurrency for many years, across multiple exchanges, using an unknown number of wallets and they cannot recall their actions. This can lead to unnecessary stress and many bury their head in the sand. Working out your taxes can be complicated and time consuming if you are unorganized. However, with the right support and software it can be relatively easy.
Who Can Support You Maintaining Adequate Records
If you need to get on top of keeping accurate cryptocurrency records to bring them up to a satisfactory level for HMRC, the most obvious sources of support are:
- To retain the services of a Crypto Accountant
- To begin using crypto tax software
Get An Accountant/Tax Advisor Who Understands Crypto
Accountants can do more than help improve record-keeping. They can file your tax return, ensure you pay the right tax (no more than is required) and undertake personal tax planning exercises. Depending on your circumstances, an Accountant/tax advisor may be able to reduce your tax bill by having knowledge of reliefs, reviewing your pension contribution, utilising gift aid etc.
A Crypto Accountant can offer you a personal one-on-one service which can be extremely helpful in building your capability and understanding of HMRC’s expectations. When searching for a Crypto Accountant, look for a certified/qualified Accountant as this will ensure the work undertaken will be completed to the highest standard. You can check if an Accountant/Tax advisor is qualified by looking for the following badges on an Accountant’s website:
- Chartered Institute of Tax
- Institute of Chartered Accountants in England and Wales
- Association of Chartered Certified Accountants
Cryptocurrency has been around for some time and it looks like it is here to stay. There are Accountants who recognised this early and have been supporting crypto clients for many years. That being said, not all Accountants are confident or competent dealing with cryptocurrency and digital assets. Some Accountants may ask you to input your data into crypto tax software.
An Accountant does not need to be personally involved in the crypto space. However, this will go a long way when talking about various tokens, crypto projects and decentralised finance (DEFI). Having an Accountant that understands and has taken part in staking, borrowing using collateral, lending and providing liquidity will make the conversation much easier.
It is especially helpful when you need support producing and maintaining records. Crypto Accountants will be able to search for missing data using their knowledge and expertise by reading the blockchain and pulling non-exchange transactions. They will also be able to interpret and manipulate the various CSV files produced by crypto exchanges.
In the event of a HMRC enquiry, your accountant will also be able to support you. They will ensure that HMRC deals with you respectfully and fairly.
Use Crypto Tax Software
Crypto Tax Software brings all of your transaction records together. It calculates your capital gain and income tax liability across multiple tax jurisdictions. It has come a long way over the last few years and it has had to develop quickly to keep up with the ever-changing digital asset environment. You may have heard of some of the most widely used and well-known tax software such as:
Crypto Tax Software is generally quick and simple to use, especially if you have limited trades across a handful of exchanges. The software works by pulling your trade information directly from exchanges or the blockchain. Where it is not possible to do so, you can upload CSV files or manually input the data.
The software often provides great FAQs if you do encounter any problems. You can also pay extra to have an expert review your data and highlight any issues. To ensure you pay the correct tax and no more than is required, this may be ideal for new users.
Conclusion
One role of HMRC is to ensure that UK taxpayers pay the correct amount of tax at the right time. To do this, HMRC receive third party information from cryptocurrency exchanges and use this to contact taxpayers who have not completed a tax return when they may need to. Many have already received a nudge letter from HMRC in the past 12 months prompting them to complete a tax return if required to do so. Those who did not complete a self-assessment tax return may be invited to make a digital disclosure or may be subject to an enquiry. Just because HMRC have not yet contacted you, doesn’t mean they won’t.
Many invest into cryptocurrency looking to increase their wealth. They do not understand or fully realise the administrative burden it places on them regarding record keeping. If you need help keeping your records, calculating tax or notifying HMRC of unpaid taxes, please seek advice. We recommend that you do not wait for HMRC to contact you as this may result in a penalty. You can review HMRC’s failure to notify penalties by reviewing their factsheets.
Compliance checks: penalties for failure to notify — CC/FS11
Assistance
This article does not cover everything you need to be aware of. Tax can be complex, so it is always advisable to seek professional advice. If you require any further information, or assistance from our Crypto Accountants, with ensuring you are keeping accurate cryptocurrency records and require assistance with your HMRC declarations and/or calculations, please contact us. our team of Crypto Accountants will be happy to help.
