HMRC’s crypto letters are a warning investors should not ignore

According to figures obtained through a Freedom of Information request and reported by the BBC, HMRC sent more than 81,000 letters, emails and text messages to crypto investors in the 2025/26 financial year. That is almost three times the number sent in 2023/24.

These communications are intended to prompt people to review their tax affairs where HMRC believes crypto-related income or gains may not have been fully declared. They should not automatically be treated as an accusation of deliberate tax evasion, but nor should they be ignored.

The difficulty is that many people who have traded cryptoassets do not necessarily think of themselves as investors in the conventional sense. Some may have bought Bitcoin or another token several years ago, experimented with different exchanges or moved assets between a number of digital wallets. Others may have exchanged one cryptocurrency for another without ever converting their holdings back into pounds.

That can create a false sense that no taxable transaction has taken place.

For capital gains tax purposes, however, exchanging one cryptoasset for another can amount to a disposal. Tax may therefore become due even though the investor has not withdrawn any cash or received money into a bank account. Depending on the nature and frequency of the activity, income tax may also be relevant.

Volatility adds another layer of complexity. A person may have realised a taxable gain when values were high, only to see the assets they retained fall sharply afterwards. A later fall in the market does not, by itself, remove the tax consequences of an earlier disposal.

Crypto investing often involves large volumes of transactions across multiple exchanges, wallets and currencies. Reconstructing that activity can be challenging, particularly if an exchange has closed, records are incomplete or transactions date back several years. The tax rules were not necessarily at the forefront of people’s minds when they first entered the market.

That helps explain why some investors may have become non-compliant through misunderstanding or poor record-keeping rather than a deliberate attempt to conceal gains. Nevertheless, HMRC will expect taxpayers to take reasonable care over their affairs and to correct matters when an error comes to light.

The important question for anyone receiving a letter is whether their historic reporting accurately reflects the full extent of their crypto activity. Simply checking whether money was withdrawn to a bank account will not be enough. The review may need to cover sales, exchanges between different tokens, payments made using cryptoassets and other disposals.

Investors who have not received a letter should not assume they are outside HMRC’s field of vision either.

The international Crypto-Asset Reporting Framework is intended to give tax authorities much greater visibility of crypto transactions. UK reporting obligations came into effect from 1 January 2026, with the first international exchanges of information expected in 2027. HMRC has said the data will be used to tackle tax evasion and avoidance, as well as to help taxpayers meet their obligations.

This marks an important change. Cryptoassets have sometimes been perceived as sitting beyond the reach of traditional financial reporting systems. As tax authorities receive more standardised information from platforms in the UK and overseas, it will become easier for HMRC to compare transaction data with the figures reported on tax returns.

People with historic crypto activity should therefore consider reviewing their position before HMRC identifies a potential discrepancy.

HMRC already provides a dedicated service through which individuals can disclose unpaid tax on cryptoasset income or gains. Before making a disclosure, taxpayers are expected to gather information about their transactions, calculate the tax, interest and potential penalties due, and determine how many years need to be included. The period covered can depend on why the correct tax was not reported at the time.

Timing can matter. HMRC distinguishes between prompted and unprompted disclosures when considering penalties. Broadly, a disclosure is unprompted if it is made when the taxpayer has no reason to believe HMRC has discovered, or is about to discover, the inaccuracy. Receiving a warning letter may therefore affect how a subsequent disclosure is viewed, depending on the circumstances.

Making a voluntary disclosure does not necessarily mean that somebody has deliberately evaded tax. It is a mechanism for correcting the position, explaining what happened and paying any tax and interest that should have been paid.

Cryptoassets should also be considered as part of wider financial and estate planning. They do not cease to exist for tax purposes simply because they are held digitally. Cryptoassets can form part of an individual’s estate on death, which means inheritance tax and practical questions about access, valuation and succession may also arise.

The rise in HMRC warning letters should ultimately be seen as a prompt for investors to understand what their transaction history actually shows. The window in which crypto activity could be regarded as relatively difficult for tax authorities to trace is closing rapidly.

For those who are uncertain about their reporting, reviewing the position now is likely to be far more manageable than trying to reconstruct several years of activity after HMRC has opened a formal enquiry.