How Do I Prepare My Crypto Accounts for an HMRC Audit

Introduction

HMRC treats cryptocurrency as a taxable asset rather than currency. This means you must pay tax when you sell, trade, or earn crypto. If HMRC suspects underreporting or wants to verify your figures, it can request detailed records of your crypto activity.

Preparing in advance is essential. HMRC can go back up to 20 years in serious cases of non-compliance, so you need to be ready to show complete and accurate data for every relevant tax year.

What triggers a crypto audit

HMRC can open an audit or compliance check for several reasons, such as:

Unreported crypto transactions detected through exchange data.

Inconsistencies between your Self Assessment return and crypto activity.

Sudden, unexplained changes in your reported income or gains.

Participation in high-risk activities such as large trading volumes or DeFi protocols.

Since 2019, many crypto exchanges have shared user data with HMRC, meaning the tax authority already knows about certain accounts and balances. Being transparent and keeping detailed records is the best way to prepare.

Step 1: Gather complete transaction records

Start by collecting every transaction you have ever made. HMRC expects you to provide full documentation, including purchases, sales, swaps, and transfers. You should include:

The type and quantity of each crypto asset.

Dates of acquisition and disposal.

Value in pounds sterling at the time of each transaction.

Details of any transaction or gas fees.

The counterparties involved, such as exchanges or wallet addresses.

The purpose of the transaction (trade, transfer, or payment).

Most exchanges allow you to export transaction histories as CSV files. Combine these with records from wallets, DeFi platforms, and any off-exchange trades.

If you have used multiple exchanges or wallets, merge the data carefully so it covers your full crypto activity.

Step 2: Keep accurate valuations in pounds

HMRC requires all crypto values to be reported in pounds sterling, not in crypto or other fiat currencies. You must record the sterling value for:

Each acquisition (when you bought or received crypto).

Each disposal (when you sold, swapped, or spent crypto).

Use consistent and reliable exchange rates. HMRC generally accepts rates from major exchanges or reputable price aggregators, as long as they are applied consistently.

Document the source of your valuations to show transparency during an audit.

Step 3: Organise records by tax year

Group your transactions by tax year (6 April to 5 April). This makes it easier to identify which disposals fall into each reporting period.

For every tax year, you should be able to show:

Total number of disposals.

Total acquisition costs.

Total proceeds.

Net capital gain or loss.

Any losses carried forward to future years.

If you receive crypto as income (such as mining rewards, staking income, or airdrops for services performed), record it separately with the sterling value at the time you received it.

Step 4: Reconcile your exchange and wallet data

Cross-check your records between exchanges, wallets, and crypto tax software to ensure nothing is missing. HMRC may question discrepancies such as:

Crypto leaving one wallet without showing where it went.

Deposits on exchanges that do not match previous withdrawals.

Missing data from decentralised platforms.

If you have lost access to an old wallet or exchange account, document it clearly and gather any available evidence, such as old emails or transaction IDs.

Step 5: Record all sources of crypto income

Crypto is not just taxable when sold. HMRC also taxes income earned through crypto-related activities. Record and categorise all income sources, such as:

Mining or staking rewards.

Airdrops received for completing tasks.

Referral or affiliate bonuses.

Payments for freelance or employment work in crypto.

The value of crypto income is based on its market value in pounds at the time of receipt. This should be reported as income and included in your total taxable earnings for the year.

Step 6: Keep supporting documents

HMRC may ask to see documents that support your crypto transactions. Keep copies of:

Bank statements showing crypto purchases or withdrawals.

Receipts or invoices for services paid in crypto.

Emails confirming transactions or wallet activity.

Notes on lost or stolen assets, including attempts to recover them.

Maintaining these records helps prove your figures and demonstrates that you have taken reasonable care with your tax reporting.

Step 7: Review and correct previous tax returns

If you realise you have made an error in a previous tax return, correct it as soon as possible. HMRC often takes a more lenient approach to voluntary disclosures.

You can amend your Self Assessment return for the last tax year within 12 months of the original filing deadline. For older years, contact HMRC to make a formal disclosure under the Worldwide Disclosure Facility or the Digital Disclosure Service.

Step 8: Use crypto tax software or professional help

Using specialist crypto tax software can simplify calculations and ensure compliance with HMRC’s cost basis rules, such as share pooling and the 30-day rule.

If your crypto activity is complex, consider hiring an accountant experienced in digital assets. They can help ensure your records are complete, your gains are calculated correctly, and your filings are compliant.

Step 9: Understand what HMRC expects during an audit

During an audit, HMRC may request:

Your full transaction history.

Exchange and wallet records.

Details of how you calculated gains and losses.

Explanations for any missing data or losses.

The tax authority may also ask questions about how you acquired crypto, what platforms you use, and whether you have any offshore holdings.

Responding quickly and accurately helps demonstrate cooperation and can lead to a smoother outcome.

Common mistakes to avoid

Ignoring airdrops, staking rewards, or referral bonuses as taxable income.

Failing to keep transaction records in pounds.

Losing track of crypto held on multiple exchanges.

Mixing personal and business crypto accounts.

Assuming that only cashing out to fiat currency is taxable.

Avoiding these errors will strengthen your position if HMRC reviews your accounts.

Example scenario

Jane has traded crypto across several exchanges for three years. When HMRC notifies her of an audit, she provides:

CSV exports of every transaction from each exchange.

A spreadsheet showing her cost basis and gain calculations.

Bank statements confirming fiat deposits and withdrawals.

Documentation showing that certain coins were transferred between her own wallets.

Because her records are complete and well organised, HMRC accepts her figures without adjustment, and the audit closes quickly.

Conclusion

Preparing for an HMRC audit on cryptocurrency begins with accurate, consistent record keeping. HMRC expects you to document every transaction, record values in pounds, and retain evidence for at least five years.

By staying organised, reconciling data between exchanges, and seeking professional support where necessary, you can ensure that your crypto accounts are ready for inspection and compliant with UK tax law. Careful preparation not only reduces the stress of an audit but also demonstrates to HMRC that you have taken your tax obligations seriously.