Receiving a crypto tax notice from HMRC can be unsettling, especially if you’re unsure why you’ve been contacted. These notices, often called “nudge letters,” are part of HMRC’s broader effort to ensure that individuals report their cryptocurrency transactions correctly and pay the necessary taxes.
Whether you’ve made occasional trades or regularly engage in crypto investing, HMRC now has better access to data and tools to identify potential underreporting. If you’ve received a letter, it’s important to understand what it means, how to respond, and how to avoid further issues. This guide will walk you through the steps to take and explain how to bring your tax affairs up to date.
How Crypto Is Taxed in the UK?
In the UK, HMRC treats cryptocurrency as property, not currency. This means that most crypto transactions fall under Capital Gains Tax (CGT) or Income Tax rules, depending on the nature of the activity. If you hold, trade, or earn crypto in any form, you may have a tax liability — even if the activity seems minor.
Capital Gains Tax (CGT)
Capital Gains Tax applies when you dispose of crypto by selling it, swapping it for another coin, spending it on goods or services, or gifting it (excluding to a spouse or civil partner). If your total gains in the 2024–25 tax year exceed the CGT allowance of £3,000, you will owe tax on the excess.
- Basic rate taxpayers pay 10% on gains above the allowance.
- Higher and additional rate taxpayers pay 20% on taxable crypto gains.
You are still required to report your crypto activity even if your gains fall within the allowance, but your total proceeds exceed £50,000.
Income Tax
If your crypto activity is classified as income, such as through mining, staking, airdrops, or high-frequency trading, you may be liable for Income Tax in the UK instead of CGT. In these cases, the value of the crypto received is added to your total income and taxed at the applicable rate:
- 20% for basic rate taxpayers
- 40% for higher-rate taxpayers
- 45% for additional rate taxpayers
Additionally, National Insurance contributions may apply if the income arises from a trade or business activity.
Read More: Crypto Tax In The UK: The Ultimate Guide
Can HMRC Track Your Crypto Transactions?
Yes, HMRC can track your cryptocurrency transactions, even if they occurred on international exchanges or through non-custodial wallets. In recent years, HMRC has strengthened its ability to monitor crypto activity by collecting data from both UK-based and overseas platforms.
Data Requests to Exchanges
HMRC regularly issues data requests to cryptocurrency exchanges operating within and outside the UK. These exchanges may be required to share customer information, including trading activity, wallet addresses, and transaction history. This data helps HMRC identify individuals who may not have reported their crypto gains or income.
Global Information Sharing Agreements
The UK is also a participant in the Crypto-Asset Reporting Framework (CARF), an initiative by the Organisation for Economic Co-operation and Development (OECD). Under CARF, crypto platforms across participating countries will automatically share user information with tax authorities. Starting in 2026, HMRC will receive detailed data from a wide range of global platforms, making it harder for investors to hide unreported gains.
Retrospective Investigations
HMRC can investigate up to 20 years of your financial history if it suspects deliberate tax evasion. Even if your crypto transactions occurred several years ago, they may still be uncovered through exchange records or blockchain analysis.
Given these capabilities, it’s essential to keep accurate records of your crypto activity and report your taxes honestly. Ignoring or underreporting transactions can lead to penalties, interest charges, or more serious legal consequences.
Read More: How To Avoid Crypto Tax in the UK?
What Are Nudge Letters Sent By HMRC?
Nudge letters are formal notices sent by HMRC to individuals they suspect may have underreported or failed to report their cryptocurrency gains or income.
These letters typically serve as a prompt to review and correct any potential errors in your tax filings before it initiates a formal investigation.
The notice outlines HMRC’s understanding that you may have disposed of crypto assets without declaring the resulting taxable events, such as selling, swapping, or spending your crypto.
Why HMRC Sends Crypto Tax Notices?
HMRC has intensified its efforts to identify individuals who may not be fully compliant with tax regulations. These notices are designed to prompt a review of your past transactions and provide an opportunity to correct any reporting errors before formal enforcement begins.
Identifying Undisclosed Crypto Disposals
One of the main reasons HMRC issues a notice is to flag undeclared disposals. A disposal can occur when you sell your crypto, exchange it for another token, use it to make a purchase, or gift it (excluding to a spouse or civil partner). If these transactions result in a gain, and you haven’t reported them on your Self Assessment return, HMRC considers a potential compliance risk.
Data Collected from Exchanges
HMRC works closely with both UK-based and international crypto exchanges to collect data about customer activity. If your transaction history indicates that you’ve moved significant funds, triggered multiple disposals, or consistently failed to report gains, you are more likely to receive a tax notice. These notices are often backed by data that HMRC has already obtained, making it important to respond with accurate and well-documented information.
Encouraging Voluntary Compliance
Rather than launching immediate investigations, HMRC uses these notices to give taxpayers a chance to come forward voluntarily. This approach helps reduce the administrative burden on HMRC while allowing investors to amend past returns and settle outstanding liabilities with fewer penalties. Responding promptly and accurately can help avoid more serious consequences down the line.
What to Do If You Receive a Crypto Tax Notice?
If you’ve received a crypto tax notice or nudge letter from HMRC, it’s important to take it seriously. Here are the steps you should take to resolve the issue and stay compliant.
Review All Your Crypto Transactions
Begin by reviewing your complete crypto transaction history, including buys, sells, swaps, and crypto used for purchases. Check records from all wallets and exchanges you’ve used. This will help you identify any gains or income that may not have been included in your previous tax returns. Ensure you understand what qualifies as a taxable event under HMRC rules.
Use a Crypto Tax Tool to Recalculate Your Taxes
Manual tracking can be complicated, especially if you’ve used multiple platforms. A crypto tax tool like KoinX can automatically import your data, calculate your capital gains and income, and generate reports in HMRC-compliant formats. This reduces the risk of errors and makes it easier to respond accurately.
Consult a Crypto Tax Specialist
If your tax situation is complex or you’re unsure about how to report specific transactions, consider speaking to a tax professional with experience in crypto. A specialist can help you interpret HMRC guidelines, amend past returns, and respond appropriately to the notice.
Disclose Any Errors Voluntarily
If you discover you have underreported or failed to report taxable crypto activity, it’s best to make a voluntary disclosure to HMRC. Doing so shows good faith and may result in reduced penalties compared to waiting for HMRC to escalate the issue.
Amend Your Tax Return if Necessary
If the review reveals errors in previous filings, submit an amended Self-Assessment return as soon as possible. You can amend a return within 12 months of the original filing deadline. This helps demonstrate that you are taking corrective action and can minimise further consequences.
Read More: Crypto Mining Tax In The UK
What Are the Risks of Ignoring the Notice?
Failing to respond to a crypto tax notice from HMRC can lead to serious financial and legal consequences. These notices are not informal warnings — they are backed by data and signal that HMRC is monitoring your crypto activity closely. Ignoring them could escalate the issue and result in higher penalties, investigations, or both.
Financial Penalties and Interest
If HMRC concludes that you owe tax on unreported crypto transactions, you may face penalties of up to 100% of the unpaid tax. In some cases, the penalty could be even higher if your crypto assets are held offshore. Late payment interest will also apply from the original due date, further increasing your overall liability.
Risk of a Formal Investigation
When a notice is ignored, HMRC may initiate a formal compliance check or open a tax investigation. This could involve detailed reviews of your financial records, bank statements, and crypto exchange histories. If HMRC suspects deliberate evasion, they have the authority to look back as far as 20 years and may pursue more severe actions, including legal proceedings.
Missed Opportunity for Voluntary Disclosure
Responding promptly gives you the chance to correct errors through HMRC’s voluntary disclosure facility. This route typically results in reduced penalties and demonstrates your willingness to comply. Ignoring the notice removes that opportunity and may result in harsher outcomes if HMRC escalates the matter.
Long-Term Impact on Tax Records
Non-compliance with HMRC requirements may affect your tax profile and increase the likelihood of future scrutiny. It may also lead to difficulties with mortgage applications, business financing, or any process that involves a tax review. Ensuring your crypto records are accurate and up to date is essential for long-term financial security.
Read More: Crypto Staking Tax In The UK
How KoinX Can Help With Crypto Tax Notices?
Responding to an HMRC crypto tax notice requires accurate records, clear reporting, and full compliance with tax laws. This can be difficult to manage manually, especially if you’ve used multiple wallets or exchanges. KoinX simplifies the entire process and ensures you meet HMRC’s expectations with ease.
Automatically Imports Transactions Across Platforms
KoinX integrates with 300+ centralised and decentralised exchanges, wallets, and blockchains. With just a few clicks, you can import all your crypto transactions into one secure dashboard. This eliminates the need to manually enter data and reduces the risk of missing key disposals or income events.
Calculates Capital Gains and Income Accurately
Once your transactions are imported, KoinX automatically categorises them and calculates your capital gains, income from staking, airdrops, or mining, and identifies taxable events based on HMRC guidelines. This ensures that your tax reports are compliant and reflect the correct tax position.
Generates HMRC-Ready Tax Reports
KoinX produces detailed tax reports tailored to HMRC’s requirements. These include capital gains summaries, income breakdowns, and complete transaction histories — all formatted for submission through Self Assessment or for sharing with your accountant or tax advisor.
Helps You Stay Compliant Year After Year
Whether you are responding to a tax notice or planning for the next tax season, KoinX helps you stay organised and compliant. You can track real-time gains, monitor tax liabilities, and plan disposals more efficiently, giving you full control over your crypto tax obligations.
If you’ve received an HMRC notice or want to avoid one in the future, using KoinX can help you stay compliant, minimise penalties, and respond with confidence.
Conclusion
Receiving a crypto tax notice from HMRC can feel overwhelming, but it’s important to treat it as an opportunity to review your tax position and make necessary corrections. Acting early, maintaining accurate records, and understanding your obligations can help you avoid penalties and ensure long-term compliance with UK tax laws.
Whether you’re dealing with a notice now or preparing for future filings, staying organised is key. KoinX simplifies this process by automating your crypto tax reporting and helping you respond accurately and confidently to any inquiries from HMRC.
