Crypto Tax: How Accountants Can Get Ahead of HMRC

Is a crypto tax headache about to hit your inbox?

Evidence suggests that only a fraction of crypto asset holders are regularly reporting taxable gains - or in many cases even recognising that they need to. 

But with HMRC's access to transaction data from global exchanges it seems that transparency is the order of the day and thousands of nudge letters are already in flight.

We invited an expert panel to discuss what accountants need to do if and when a client asks the inevitable question, "what do I do next?"

Watch the webinar, or read on below.

HMRC is turning up the heat on crypto, and the gap between what it suspects and what's being declared is enormous. Many of the clients caught in that gap won't go looking for a specialist. They'll come straight to their existing accountant, nudge letter in hand, asking what to do next.

On a recent episode of TaxCalc TV, we were joined by Dan Howitt, CEO and co-founder of crypto tax software provider Recap, and Chris Springett, tax partner at S&W, who has spent eight years advising clients on crypto. Here's what they told us about the size of the problem, and how practices can get ready for it.

A tax gap you can't miss

An estimated five million people in the UK own crypto assets. Yet fewer than 18,000 reported a gain on their 2024/25 tax return. Meanwhile, HMRC sent more than 81,000 nudge letters this year, up from 61,000 the year before.

As Dan put it, however you look at the numbers, "you get the feeling there's some kind of tax gap." And HMRC is about to get a much clearer view of it.

From May 2027, HMRC will receive its first data under the Crypto Asset Reporting Framework (CARF). The UK and 73 other jurisdictions, including the whole of the EU, have signed up to automatically share information from crypto exchanges. The US is joining too, with a later reporting date. Trade on an exchange in the UAE, and that activity will find its way back to HMRC.

CARF won't give HMRC enough detail to calculate anyone's tax bill. It will, however, show the scale of trades and withdrawals, making it a powerful tool for spotting risk. In Dan's words, HMRC is going to be "lit up like a Christmas tree" with data.

After five years of nudge letters with little take-up, both guests expect HMRC's approach to step up a notch or two. And the pool of potential clients is set to grow: the FCA estimates another three to four million people will buy crypto once it becomes a regulated asset class and banks and brokers open up to it.

Why so many clients get it wrong

Much of the problem is misunderstanding rather than evasion. Some clients see crypto as a side hustle or something akin to gambling. Many simply don't recognise when they've triggered a tax point.

HMRC treats crypto much like shares, with pooling and matching rules. Selling for cash is an obvious disposal. Less obvious is that swapping one token for another, spending crypto on goods or services, or gifting it are all disposals too. Because exchanges let you swap Bitcoin for Ethereum without ever seeing sterling, plenty of people never realise a taxable event has happened.

The records are rarely tidy either. Most crypto investors use four or more exchanges, plus wallets of their own. Transaction volumes can run into the thousands, or even millions. Faced with that, many clients simply put it at the bottom of the pile.

Nudge letters: an invitation, not a formality

A nudge letter, whether it arrives by post, email or text, means HMRC holds data that doesn't match the client's return. It isn't a formal enquiry, but ignoring it can lead to one. Crucially, it won't tell you what HMRC can see, or whether other platforms have reported too.

Formal enquiries are already being opened. They typically involve around eight questions, probing the raw data, the section 104 pool and opening and closing balances. Letters have gone to people with a few thousand pounds of activity and to those with hundreds of thousands, so no client should assume they're too small to be noticed.

What accountants need to do

1. Ask the question. Add a specific crypto question to your annual client questionnaire. Even firms that say they don't take on crypto clients may have more exposure than they think.
2. Revisit AML and due diligence. Holding crypto doesn't make a client high risk. But activity across several overseas exchanges, decentralised finance or privacy coins may warrant a fresh risk assessment. Blockchains are public, so sanctions and scam checks are easier than many assume.
3. Don't quote too early. A nudge letter tells you nothing about the scope of the work. The client may have been trading since 2010. Scope first, then price.
4. Reconstruct the full portfolio. Capital gains depend on cost base, so a single year's return can mean rebuilding activity going back years. Gather records from every exchange and wallet into one ledger before calculating anything.
5. Fill gaps with a reasonable basis. Exchanges go bust and offshore platforms may not provide proper statements. Software will often assume a zero base cost, the worst possible outcome. Use bank records and historical prices to build something defensible.
6. Understand the time limits. Disclosures look back four years where reasonable care was taken, six years for carelessness and 20 years for deliberate behaviour. After registering with HMRC's crypto disclosure facility, clients have 90 days to submit.
7. Price the reconciliation, not the return. Dan estimates that rebuilding a portfolio manually takes around 20 hours, falling to about two with dedicated software. Tier fees by complexity: one exchange, several exchanges and wallets, or derivatives and NFTs.
8. Check your cover. Fee protection may not extend to crypto nudge letters or enquiries, and some insurers are wary of crypto-specialist firms. Speak to your professional indemnity insurer too, and never accept a software report without checking how the figures were derived.

Get ahead before the data arrives

It isn't all stick. Proposed changes announced in the recent Budget would take stablecoins out of capital gains tax and stop lending and staking from counting as disposals, potentially from April. Staking rewards, though, are still likely to be taxed as income.

The message from both guests was clear: voluntary disclosure is the client's best route, and the window to make one on their own terms is closing. As Chris put it, this is "a key area to get ahead of."

Talk to your clients now, before CARF data starts landing at HMRC in May 2027.