• The U.K. published a notice on Wednesday encouraging crypto users not to pay taxes and to report them voluntarily to avoid penalties.
  • Experts told CoinDesk that a 2022 government survey revealed 72% of U.K. crypto owners had not read the crypto tax guidance. But ignorance will not be an excuse for tax avoidance, they said.
  • Tax advisors suggest that regulators can track undeclared cryptocurrency using a variety of methods, including whistleblowers, creditor lists, and recent bankruptcy records.

The United Kingdom is crackingdown on unpaid cryptocurrency taxes. Tax advisors tell CoinDesk that investors may not be aware of the fact they owe money to the government, but this is no excuse.

David Lesperance of the tax advisory firm Lesperance and Associates told CoinDesk that in fact, there are several ways to find out who is not paying taxes or hiding their crypto holdings.

The country Treasury requested that crypto investors calculate and report any unpaid capital gains or income taxes in order to avoid penalties. Disclosure requirements apply to exchange tokens like bitcoin (BTC), non fungible tokens and utility tokens.

Lesperance said that the Treasury could check to see if these funds were included in tax returns. He said the government could also rely upon whistleblowers that know you invested in crypto.

Lesperance said that the Treasury might need to hire more resources to assist with investigations and may also want to hire companies such as Palantir.

The U.K. is also one of the nations who welcomed , new international standards for crypto tax data exchange between authorities that were developed by Organization for Economic Cooperation and Development.

Seymour explained that “this means more information is going to Treasury than what people would have anticipated previously.”

Calculating tax that has not been paid

The government stated that if investors were “reasonably careful” in declaring their tax, they could be required to pay for unpaid taxes due to the government up to three years prior to the current year.

Seymour said, “If you were reasonable, you would have read the guidance, misunderstood what you found, and then asked a tax advisor about it.”

Investors who don’t do their tax work correctly could be liable for up to 6 years.

Taxes on crypto could be paid by those who deliberately avoided taxes, knowing they should have been paying them.

The government warned that not contacting Treasury could result in additional penalties and interest. However, these can be reduced if errors are reported. Investors who deliberately hide crypto holdings can be penalized between 30% and 100% extra tax.

Ignorance does not make you blissful

Seymour stated that people may not be aware of how much tax they owe. A survey by the government in 2022 showed about 72% former and current crypto users had not read Treasury’s guidance on crypto tax.

Seymour added that “the taxation on crypto isn’t as simple or intuitive as people may think,”

Seymour said that people may not realize they have created taxable events. ETH Price Index and Live Chart – CoinDesk”>(ETH) can be a taxable event, he said. The purchase of crypto with other crypto can also be considered a tax-deductible event.

Seymour explained that if investors had used software, or stayed on top of the process, it wouldn’t be a problem. But if not, it could be a challenge for them to calculate all the numbers.

Read more: UK will penalize crypto users for unpaid taxes

Sandali Handagama & Nikhilesh De edited the book.