article 🔍 Cracking Down on Crypto: UK Tax Authorities Ramp Up Compliance Efforts 💰

Tax agencies in the United Kingdom and India are increasingly leveraging user data obtained from major cryptocurrency exchanges such as Binance to identify and pursue individuals suspected of tax evasion.

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Surge in HMRC Compliance Letters

The UK’s HM Revenue & Customs (HMRC) has significantly increased its monitoring of cryptocurrency transactions, dispatching approximately 65,000 “nudge letters” to investors believed to have inaccurately reported or omitted digital asset earnings. This figure marks a notable rise—more than double the number sent in the previous year, as reported by The Financial Times.

Data secured through a Freedom of Information request by the accounting firm UHY Hacker Young reveals a 134% year-over-year increase in these advisory notices. Typically, such letters are issued as an initial step before launching full-scale audits, encouraging recipients to reassess their tax returns and address any unpaid taxes.

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Global Data-Sharing Initiatives

According to Neela Chauhan, a partner at UHY, HMRC is actively utilizing information submitted directly by cryptocurrency trading platforms to pinpoint possible tax avoidance cases.

This effort is part of a broader international trend. For example, Indian tax officials are also investigating more than 400 individuals suspected of crypto tax evasion, aided by data shared by Binance.

These actions underscore how tax authorities worldwide are enhancing their oversight of cryptocurrency activities through cross-border data exchange agreements.

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Upcoming Regulatory Changes: CARF

A major shift is expected in 2026 with the introduction of the Crypto-Assets Reporting Framework (CARF), a global standard that has been adopted by nearly 70 countries, including OECD members.

Under CARF, digital asset exchanges will be mandated to submit detailed customer and transaction data to national tax agencies. The initial round of reporting is scheduled for May 31, 2027, greatly expanding the transparency of crypto-related earnings.

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UK Crypto Tax Guidelines

In the UK, most cryptocurrencies are classified as investment assets. This means that activities such as selling, swapping, or using crypto to make purchases are considered taxable disposals, subject to Capital Gains Tax (CGT).

Additionally, cryptocurrency obtained through mining, staking, airdrops, or as payment for services is categorized as income and is taxed accordingly.

Recent revisions to the tax code have adjusted CGT rates to 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, applicable to disposals occurring after October 30, 2024.

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UK Regulatory Developments

In a parallel move signaling continued integration of digital assets, the UK’s financial regulator recently ended a four-year prohibition on cryptocurrency-based exchange-traded notes (ETNs). This decision permits asset management firms to list such products on the London Stock Exchange.

Analysts from IG Group project that this regulatory update could increase domestic cryptocurrency market activity by up to 20%, indicating growing institutional acceptance even amid stricter tax enforcement.

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New “Digital Markets Champion” Role

The UK government has also announced its intention to appoint a “Digital Markets Champion” to oversee the transition toward blockchain-integrated financial systems, as stated by Economic Secretary to the Treasury, Lucy Rigby.

This official will be tasked with coordinating private sector initiatives related to the tokenization of wholesale financial instruments and ensuring that innovation remains consistent with national regulatory standards.

During her address at the Digital Assets Week conference in London, Rigby also introduced the Dematerialisation Market Action Taskforce. This new group will focus on replacing physical share certificates with digital records to improve the efficiency of financial markets.

This effort is a component of the UK’s Wholesale Financial Markets Digital Strategy, which includes plans to issue blockchain-based government bonds, referred to as “digital gilts,” under the DIGIT program.