From 1 January 2026, new reporting regulations will be enforced in the UK, introducing substantial risks for digital asset platforms and cryptocurrency exchanges, including the possibility of corporate criminal prosecution for failing to prevent tax evasion by investors.
Although the UK tax code does not explicitly address cryptoassets, their burgeoning popularity prompted HM Revenue and Customs (HMRC) to issue a detailed Cryptoassets Manual in March 2021.
This guide outlines the application of general tax principles to cryptoassets, including potential liabilities for capital gains tax upon disposal of cryptoassets—not just through conversion into fiat currency but also through token exchanges or gifting. Income tax may also apply to gains derived from mining, staking, or airdrops if these activities are deemed commercial.
With the complexity of tax implications and the potential for intentional evasion, HMRC remains vigilant, evidenced by the thousands of “nudge letters” sent to cryptoasset investors, urging them to rectify under-reported taxes.
In response to ongoing concerns, HMRC launched a voluntary disclosure facility in November 2023, specifically targeting cryptoasset transactions, and amended the standard Self-Assessment tax return in April 2024 to compel detailed reporting of cryptoasset-related earnings.
Tracking transactions by UK taxpayers in the realm of cryptoassets presents significant challenges due to the difficulty of tracing such activities via traditional methods.
HMRC often relies on data from cryptoasset platforms, and since 2019, it has exercised statutory powers to compel some exchanges to share user and transaction data.
Nonetheless, enforcement issues persist, especially with exchanges located outside the UK, and some exchanges retain relevant records only briefly.
To combat these challenges, the UK government plans to adopt the Organisation for Economic Co-operation and Development’s Crypto-Asset Reporting Framework (CARF), which imposes extensive new reporting obligations on reporting cryptoasset services providers (RCASPs).
Under this framework, RCASPs must collect and verify details on users and their transactions, reporting these to the relevant tax authorities, facilitating international cooperation in tax compliance.
UK-based RCASPs are expected to start collecting necessary data from 1 January 2026, with the first reports due to HMRC by 31 May 2027.
This will include information on both UK and non-UK resident investors, with future plans to share data internationally through CARF, enhancing the capability to address non-compliance.
Failure to adhere to these regulations could result in significant financial penalties, potentially accruing daily. However, the broader implication for crypto exchanges is the potential corporate liability under the Criminal Finances Act 2017, which allows HMRC to prosecute companies that fail to prevent their associates from facilitating tax evasion.
As the Financial Conduct Authority (FCA) has laid out its future regulatory plans in the Crypto Roadmap published in December 2024, digital asset platforms must brace for a rigorous compliance landscape encompassing tax and fraud regulations—a landscape that the FCA expects them to consider thoroughly in their authorisation applications.
