Are crypto wallets and exchanges required to report to HMRC?

At Towerstone, we provide specialist crypto accountancy services for UK investors and businesses. We have written this article to explain reporting obligations for crypto platforms, helping you understand the tax and reporting position.

In my experience, this is one of the most misunderstood and anxiety-inducing questions in crypto taxation. I hear it from people who traded years ago and stopped, from people actively investing today, and from people who have never sold a single token but are worried they have already done something wrong.

There is a lot of misinformation online. Some people believe crypto is anonymous and invisible to HMRC. Others think every transaction is automatically reported the moment it happens. In my opinion, both extremes are wrong, and the reality sits firmly in the middle.

The UK tax system has moved very quickly in the crypto space. What might have been partially true five or six years ago is no longer true today. HMRC has become far more sophisticated, data sharing has expanded, and reporting obligations are tightening year by year.

In this article, I am going to explain clearly and honestly whether crypto wallets and exchanges are required to report to HMRC, what information is actually shared, how HMRC obtains crypto data in practice, and what this means for individuals. I will also cover where people tend to misunderstand the rules, and what I have seen happen when HMRC makes contact.

This is not written to scare anyone. In my opinion, understanding the system is the best way to remove fear and make sensible decisions.

The Short Answer, Then the Real One

The short answer is yes, many crypto exchanges are already required to report information to HMRC, and that reporting is increasing. Some wallets and decentralised platforms are not currently reporting in the same way, but that does not mean HMRC cannot or will not access the data.

The longer and more important answer is that HMRC does not rely on a single source of information. Reporting is only one part of a much wider compliance picture.

From experience, people get into trouble not because HMRC knows everything instantly, but because they assume HMRC knows nothing at all.

HMRC’s Position on Crypto in the UK

HMRC has been very clear for several years now that cryptoassets are not outside the tax system.

HMRC does not treat crypto as currency. Instead, it treats crypto as a form of property or asset, depending on how it is used.

This means that:

• Crypto disposals can trigger Capital Gains Tax
• Crypto income can be subject to Income Tax
• Records must be kept
• Tax must be reported voluntarily

From experience, HMRC’s expectation is that crypto users self report accurately, just like with shares or property.

Who Is HMRC in This Context

HMRC is responsible for collecting UK taxes and enforcing compliance. In recent years, it has invested heavily in digital forensics, data analytics, and international cooperation.

In my opinion, HMRC now treats crypto as a mainstream compliance issue rather than a niche or experimental one.

Do UK Crypto Exchanges Report to HMRC?

Yes, many UK based crypto exchanges already share data with HMRC.

This does not always happen in real time and it does not necessarily include every transaction, but the idea that UK exchanges operate in isolation is outdated.

UK exchanges are subject to:

• UK anti money laundering regulations
• Know your customer requirements
• Registration and oversight by UK regulators
• Information requests from HMRC

From experience, if HMRC asks a UK exchange for customer data, it will usually be provided.

What Type of Data Can Be Reported

This is an important point, because people often imagine a full transaction ledger being sent automatically. That is not always the case.

Data that may be reported or shared includes:

• Name
• Date of birth
• Address
• Email address
• Wallet addresses associated with the account
• Transaction histories
• Fiat on and off ramp activity

From experience, HMRC is particularly interested in points where crypto touches traditional money, such as bank transfers.

Are Overseas Exchanges Required to Report to HMRC?

This is where things become more complex.

Overseas exchanges are not directly subject to UK law in the same way as UK exchanges. However, that does not mean HMRC has no access to their data.

In my opinion, this is the most misunderstood area.

International Data Sharing Agreements

The UK participates in international information sharing agreements designed to combat tax evasion and money laundering.

These frameworks are expanding to include crypto.

From experience, HMRC can and does obtain information from overseas exchanges through:

• International cooperation
• Data sharing agreements
• Formal information requests
• Joint investigations

Just because an exchange is based overseas does not mean activity is invisible.

The Crypto Asset Reporting Framework

One of the most important developments in this area is the Crypto Asset Reporting Framework, often referred to as CARF.

This is an international standard developed to ensure crypto exchanges report user information to tax authorities.

The UK has committed to implementing this framework.

In my opinion, this marks a clear shift towards routine global crypto reporting, similar to what already exists for bank accounts.

What CARF Means in Practice

Once fully implemented, CARF is expected to require crypto platforms to report:

• User identity
• Jurisdiction of residence
• Transaction data
• Balances and transfers

From experience, this will significantly reduce the scope for non disclosure.

Are Crypto Wallets Required to Report to HMRC?

This is where nuance really matters.

A crypto wallet is not always the same thing as an exchange.

There are broadly two types of wallets:

• Custodial wallets
• Non custodial wallets

They are treated very differently.

Custodial Wallets and Reporting

Custodial wallets are wallets where a platform holds the private keys on behalf of the user.

Examples include wallets held within exchanges.

From experience, custodial wallets are much more likely to be subject to reporting obligations because:

• The platform controls access
• KYC checks are in place
• User identity is known

In practice, custodial wallets are often treated similarly to exchange accounts for reporting purposes.

Non Custodial Wallets and Reporting

Non custodial wallets are wallets where the user controls their own private keys.

Examples include hardware wallets and software wallets.

These wallets do not typically report directly to HMRC.

However, and this is critical, that does not mean activity involving these wallets is invisible.

From experience, HMRC can still identify activity through:

• Exchange interactions
• Blockchain analysis
• Fiat transfers
• Third party data

In my opinion, the phrase non reportable is often misunderstood as non detectable.

Blockchain Transparency and Analysis

One of the biggest misconceptions about crypto is that it is anonymous.

Most major blockchains are public ledgers.

Every transaction is recorded permanently and can be analysed.

HMRC uses blockchain analytics tools to:

• Trace transactions
• Link wallet addresses
• Identify patterns
• Associate activity with individuals

From experience, this technology is far more advanced than people realise.

How HMRC Connects Wallets to People

HMRC rarely starts with a random wallet address.

Instead, it usually starts with a person.

From there, it builds a picture using:

• Exchange data
• Bank records
• Withdrawal addresses
• On chain transaction patterns

Once a wallet is linked to an individual, historic activity can be examined in detail.

Banks and Crypto Reporting

UK banks are another major source of information.

Banks are required to monitor and report suspicious activity.

From experience, banks routinely flag:

• Transfers to crypto exchanges
• Large or frequent crypto related payments
• Unusual patterns inconsistent with income

These reports do not automatically trigger tax investigations, but they create data points.

What About Decentralised Exchanges

Decentralised exchanges, often called DEXs, do not operate like traditional platforms.

They do not usually perform KYC checks and they do not hold user funds.

This leads many people to assume they are outside the reporting net.

In my opinion, this is risky thinking.

While DEXs themselves may not report directly, activity involving them can still be traced through:

• Wallet interactions
• Bridging transactions
• Entry and exit points via centralised exchanges

From experience, HMRC focuses on the full journey of funds, not just individual platforms.

Does HMRC Already Have Crypto Data on Individuals?

Yes, in many cases.

HMRC has already issued letters to thousands of individuals suspected of underreporting crypto gains.

These letters are not random.

They are usually based on:

• Exchange data
• Historical transaction information
• Bank disclosures
• Third party intelligence

From experience, receiving such a letter often comes as a shock to the recipient.

Voluntary Disclosure Versus Investigation

One of the most important distinctions in my opinion is the difference between voluntary disclosure and being investigated.

If you come forward and correct errors before HMRC contacts you, the outcome is usually far better.

If HMRC contacts you first, penalties can increase significantly.

From experience, timing makes a huge difference.

Penalties for Failing to Declare Crypto

Failure to report crypto income or gains can lead to:

• Backdated tax
• Interest
• Penalties
• In serious cases, criminal investigation

Penalties depend on behaviour.

HMRC looks at whether errors were:

• Careless
• Deliberate
• Concealed

In my opinion, honesty and cooperation matter more than people realise.

Common Misunderstandings I See in Practice

Over the years, I have seen the same assumptions repeated.

These include:

• HMRC cannot see crypto
• Using overseas exchanges avoids reporting
• Small transactions do not matter
• Only selling crypto is taxable
• Losses do not need to be reported

In my experience, these beliefs cause most of the problems.

Record Keeping Responsibilities

Regardless of reporting by exchanges, individuals are responsible for keeping records.

HMRC expects records of:

• Dates of transactions
• Values in GBP
• Fees paid
• Wallet addresses
• Transaction purposes

From experience, reconstructing records years later is far harder than maintaining them as you go.

What About NFTs and DeFi

HMRC treats NFTs and DeFi activity as taxable in many circumstances.

This includes:

• NFT sales
• Token swaps
• Liquidity provision
• Staking rewards

Reporting obligations are expanding into these areas as well.

In my opinion, assuming these activities are outside HMRC’s view is increasingly unsafe.

Does HMRC Care About Small Amounts?

There is no formal minimum threshold for reporting.

However, tax is only due if thresholds are exceeded.

That said, HMRC still expects disclosure even if no tax is ultimately payable.

From experience, consistent small transactions can still attract attention.

The Direction of Travel

In my professional opinion, the direction is clear.

Crypto reporting is increasing, not decreasing.

International cooperation is expanding, not shrinking.

HMRC’s technical capability is improving year by year.

What may have gone unnoticed in the past is far less likely to remain unnoticed in the future.

My Professional View

In my opinion, the question is no longer whether crypto exchanges report to HMRC, but how much they report and how often.

Relying on gaps in the system is not a strategy. It is a gamble.

From experience, the people who fare best are those who:

• Keep good records
• Report accurately
• Correct mistakes early
• Seek advice when unsure

What Should You Do If You Are Unsure

If you are unsure whether your crypto activity has been reported, or whether you should have declared something, the safest step is to review your position.

This may involve:

• Reviewing transaction history
• Calculating gains and income
• Checking past tax returns
• Making a voluntary disclosure if needed

In my opinion, clarity is always better than uncertainty.

Where this leaves you

So, are crypto wallets and exchanges required to report to HMRC?

Yes, many exchanges already do, more will be required to do so in the future, and wallets are not the shield some people think they are.

HMRC does not rely on a single reporting channel. It builds pictures from multiple sources, over time, using data that is increasingly detailed and interconnected.

In my experience, the biggest risk is not crypto itself, but misunderstanding how visible it has become.

In my opinion, treating crypto like any other taxable asset, with transparency and proper reporting, is no longer just sensible. It is essential.

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