Exclusive: Government oblivious to scale of crypto tax-dodging despite ‘global hub’ plans
The government has made no calculations on the amount of dodged tax takings on cryptoassets despite the Treasury’s plans to turn the UK into a hub for crypto, City A.M. has learned.
The Treasury under Rishi Sunak unveiled plans in April to turn the UK into a global centre for crypto firms and announced plans to bring so-called stablecoins into regulation. Ministers have since made moves to bring the wider crypto ecosystem within the realm of regulators.
However, information obtained via a freedom of information request shows that volatility in the market means the taxman has not tallied up the potential unpaid capital gains tax on digital assets.
“The pseudonymity of cryptoassets, and those using them, has made estimating the value of the cryptoasset market within the UK a unique challenge,” HMRC said.
“This also has to be considered in the context of highly volatile valuations and an immature market that has grown rapidly over the last 12 years.”
HMRC calculates the ‘tax gap’ between the theoretical revenue that particular assets and goods should generate and what is actually paid. Investors are required to pay capital gains tax on crypto assets but the anonymous nature of the ecosystem makes it easier to dodge than traditional, more stable assets.
The admission from HMRC raises questions over the preparedness of government and regulators to wrestle the volatile market into the UK’s more mainstream financial framework.
The price of bitcoin has plunged around 57 per cent since mid-April when the Treasury under then-chancellor Rishi Sunak announced its plans to push ahead with crypto rules.
The industry has been dealt a further blow in the past weeks by the collapse of crypto exchange FTX which has sent prices plummeting and ignited calls for tighter regulation.
Deputy governor of the Bank of England Jon Cunliffe said this week that the collapse of Sam Bankman-Fried’s empire showed the need to clampdown on firms before they swell to a size where they may threaten the wider financial system. Watchdogs in the UK have been edging into the space but currently only regulate crypto firms under anti-money laundering rules.
A Government spokesperson told City PM that it is “delivering on ambitious plans to make the UK a global hub for cryptoasset technology – while ensuring consumers fully understand the risks.”
“Incentivising firms to invest, innovate and scale on UK shores will enable the government to expand its tax base – helping to fund key public services such as the NHS,” the spokesperson added.
The government is expecting its crypto hub plans to yield a tax boost via an increase in firms setting up shop in the UK, as well as tightening the screws on those not paying capital gains tax on crypto assets.
Officials are also understood to be trying to boost their ability to gauge unpaid tax taking on crypto assets.