With nearly 5 million people in the UK owning cryptocurrencies, HMRC firmly has crypto traders in its crosshairs. After launching an awareness campaign last year, tax investigators are pursuing crypto tax debts from 2022/23 and prior years. So what should you do if an HMRC letter arrives requesting details of your historic Bitcoin, Ethereum, or other crypto transactions?

Responding To Tax Investigation Notices 

If HMRC opens an enquiry into your tax affairs, you’ll receive a formal notice quoting legislative powers to inspect records. These letters typically demand full disclosure of cryptocurrency trading history across one or more years. 

While such probes rightfully worry those yet to declare crypto gains, don’t panic. HMRC normally provides 30 days to supply requested transaction evidence. If complying with this timescale proves difficult, contact tax officers quickly, asking for an extension before the deadline expires. Tax investigators usually agree to longer periods if sought promptly and cooperatively.

Do I Have a Tax Liability?

Mere crypto ownership or buying doesn’t automatically trigger tax bills – HMRC only investigates where income or sale proceeds arose. If you cashed in Bitcoin windfalls regularly, substantial tax might be owed. But infrequent, modest gains could fall under tax-free allowances, meaning no declarations or payments were legally necessary.

Gauging Tax On Occasional Crypto Gains 

If you only occasionally sold crypto, any profits likely constitute taxable capital gains. However, everyone benefits from a £12,300 annual capital gains tax exemption during 2022/23. So, if total asset disposal gains last tax year fell under this allowance, you shouldn’t owe any tax regardless of HMRC investigations. 

Watch Out For Frequent Trader Rules  

Beware, though – frequently trading cryptos might make you liable for income tax, not capital gains tax on profits. Income tax lacks equivalent allowances, so regular speculative crypto trading could expose you if past declarations missed HMRC’s radar.

Seeking Expert Guidance 

Don’t panic about receiving an HMRC crypto tax enquiry – especially if you seldom traded tokens or coins in previous years. But do respond cooperatively within any extended deadlines tax officers permit. Complying constructively often removes suspicions, even if declarations prove necessary. Obtaining professional tax advice always makes sense in interpreting complex crypto investment regulations and planning intelligent responses that minimise personal liabilities.