The U.K.’s tax agency HM Revenue & Customs, also known as HMRC, is exploring the possibility of seizing cryptocurrency from businesses that don’t pay their taxes.
As part of its plan to modernize tax collection in the digital era, the government is considering giving HMRC the power to access online wallets. Although still unclear, the HRMC consultation document suggests that businesses’ crypto wallets in the country could also be subject to seizure if cryptocurrencies ever become a standard mode of online payment.
The proposal is similar to HMRC’s current ability to seize funds from bank accounts under “direct recovery of debts” powers but extended to online payment accounts like PayPal.
“The proposals will help ensure HMRC’s debt collection keeps pace with business practices,” said an HMRC spokesperson.
The spokesperson also said the rise of e-commerce implied that new business practices with fewer physical and owned assets in the UK could make it difficult for the tax agency to collect unpaid taxes using their existing powers.
The government will ensure safeguards are in place to regulate the powers, reassuring taxpayers that these powers are exercised consistently and proportionately. At the same time, the proposed powers will require feedback from the public, as they will aid the government in better understanding the proposal’s potential effects and whether any changes need to be made.
Crypto asset taxes
Since 2021, taxpayers in the UK must report any holdings they have in Bitcoin and other cryptocurrencies with a specific question added to the Statement of Assets Form.
Digital currencies such as Bitcoin make it challenging for authorities to monitor them compared to conventional assets like cash and shares. With the provided information in the form, it would be easier for HMRC to verify the assets every time.
In a recent update, the Treasury amended the Self Assessment (SA) system rules. Taxpayers now need to provide detailed information on their cryptocurrency transactions and holdings separately.
The change will ensure crypto assets are adequately taxed in the U.K., as the separate report provides greater transparency on who is reporting their profits. The government hopes to generate an extra £10 million ($12.1 million) annually by introducing these new rules that will take effect in the 2024–25 tax year.
According to Mike Hodges, a partner at the accounting firm Saffery Champness, the new rules could remind taxpayers to consider the tax implications of their crypto holdings and reduce confusion. He also noted that the changes coincide with a decrease in the Capital Gains Tax (CGT) threshold taxpayers must pay to £3,000 ($ 3,796).
Criminal activities surrounding cryptocurrencies
Seizing cryptocurrencies from wallets would be viewed as the latest measure against the sector that has received criticism for enabling illicit activities such as fraud and money laundering. They are also often hailed as a means of financial autonomy beyond government regulation.
Individual-operated crypto wallets are secure and cannot be accessed by others, but wallets on centralized online exchanges like Coinbase, Binance and Kraken may be subject to seizure if businesses don’t comply with tax rules.
Should criminal activity be detected on these exchanges, law enforcement agencies can seize the cryptocurrencies. To date, they have confiscated cryptocurrency worth hundreds of millions of pounds linked to criminal operations and have often sold it through auctions.
One of the most recent cases dates to last January when a U.K. court sentenced four men to 15 years in prison for fraudulently obtaining and laundering approximately $26 million worth of Bitcoin and other cryptocurrencies from an Australian crypto exchange.
