How Do I Prepare My Crypto Accounts for an HMRC Audit

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

This is a question that usually comes with a lot of anxiety attached to it, and from experience I completely understand why. The word audit alone makes people nervous, and when you add crypto into the mix it can feel overwhelming. In my opinion most people are not worried because they have done something deliberately wrong. They are worried because they are not sure whether what they have done is right, or whether they can prove it.

I have supported individuals, landlords, directors, and business owners through HMRC enquiries involving cryptoassets. Some were formal audits, others were compliance checks or information requests. What I have learned from experience is that HMRC is rarely looking for perfection. They are looking for clarity, consistency, and evidence that reasonable care has been taken.

In this guide I will walk you through how to prepare your crypto accounts for an HMRC audit in a practical and realistic way. I will explain what HMRC is likely to ask for, how to organise your records, how to deal with gaps or mistakes, and how to approach the process calmly and professionally. I will also be honest about where people usually fall down and how to fix issues before HMRC finds them.

What an HMRC Crypto Audit Usually Looks Like

The first thing I always explain is that most “audits” are not dramatic investigations. From experience HMRC crypto audits usually start as one of the following:

A letter asking for clarification about crypto activity

A compliance check linked to a Self Assessment return

A request for transaction data from a specific exchange

A wider enquiry where crypto is one area of focus

In my opinion the biggest mistake people make is panicking and responding too quickly without understanding what HMRC is actually asking.

HMRC usually wants to establish three things:

What crypto transactions took place

How tax has been calculated

Whether the figures reported are complete and accurate

If you can answer those three points clearly, most enquiries do not escalate.

Understanding HMRC’s View of Crypto

Before you prepare anything, you need to understand how HMRC sees crypto.

From HMRC’s perspective cryptoassets are taxable assets, not currency and not gambling. This means:

Disposals can trigger Capital Gains Tax or Corporation Tax

Income events can trigger Income Tax or PAYE

Record keeping is expected to the same standard as other assets

In my opinion many crypto audits go badly because people try to explain what they thought crypto was rather than applying HMRC’s framework.

Preparation means aligning your records to HMRC’s view, not arguing with it.

Start by Mapping All Your Crypto Activity

The very first step I recommend from experience is creating a complete map of your crypto activity.

This means listing:

Every exchange you have used

Every wallet you have controlled

Every blockchain you have interacted with

The period of time involved

Do not rely on memory alone. People almost always forget platforms they used years ago.

From experience this mapping exercise is often the hardest part, but it is also the most important.

If HMRC sees transactions from an exchange you have not mentioned, it immediately raises questions.

Gather All Transaction Data

Once you know where your crypto activity took place, you need to gather the raw data.

This usually includes:

CSV exports from exchanges

Wallet transaction histories

Records of deposits and withdrawals

Trade histories

Fee reports

From experience you should download original data files rather than relying on screenshots or summaries.

HMRC may ask:

For original transaction data

To see how figures were calculated

To reconcile totals back to exchange records

In my opinion if you cannot produce raw data, your position becomes much harder to defend.

Convert Everything to Sterling

One of the most common problems I see is crypto records that are still denominated in crypto values only.

HMRC expects all tax calculations to be in sterling.

This means for every taxable event you need:

The date of the transaction

The sterling value at that date

The exchange rate source

From experience using consistent exchange rate sources is important. Switching between sources without explanation creates inconsistency.

If you have historical data without sterling values, this needs to be reconstructed. It is time consuming, but it is better to do it yourself than let HMRC do it for you.

Identify All Taxable Events

Preparation is not just about data. It is about interpretation.

You need to clearly identify which transactions are taxable events.

Common taxable events include:

Selling crypto for fiat

Swapping one cryptoasset for another

Using crypto to buy goods or services

Receiving staking rewards

Receiving mining income

Receiving airdrops

Being paid in crypto

From experience many people underreport because they only include cash withdrawals. HMRC does not agree with that approach.

Part of preparing for an audit is being honest with yourself about how many disposals have actually occurred.

Separate Transfers From Disposals

One of the most frequent issues in crypto audits is confusion between transfers and disposals.

Moving crypto between wallets you own is not a disposal. Selling, swapping, or spending crypto is.

From experience HMRC will often ask for wallet addresses to verify that transfers were internal.

I recommend clearly labelling:

Internal transfers

External disposals

Deposits and withdrawals

This clarity makes a huge difference when explaining your activity.

Apply the Correct Cost Basis Rules

In the UK cryptoassets are subject to pooling rules.

This means you cannot simply match a sale to the most convenient purchase.

From experience HMRC expects:

Section 104 pooling to be applied

Same day and bed and breakfast rules to be followed

Costs to be allocated correctly

If you have used crypto tax software, you should still review the output. Software can misclassify transactions if the underlying data is incomplete or incorrectly tagged.

In my opinion being able to explain how your gains were calculated is more important than the software used.

Prepare a Clear Gain and Income Summary

Before HMRC asks, you should have your own clear summary.

This should show:

Total disposals

Total gains and losses

Total crypto income

How figures link to your tax return

From experience HMRC officers appreciate summaries that tell a coherent story rather than raw data dumps.

This does not mean hiding detail. It means presenting it logically.

Deal With Missing Data Early

Almost everyone has missing data. Exchanges close, accounts are lost, records are incomplete.

From experience the worst thing you can do is ignore gaps.

Instead:

Identify missing periods or platforms

Reconstruct data where possible

Use reasonable estimates supported by evidence

Document assumptions clearly

HMRC is far more forgiving of disclosed uncertainty than unexplained omissions.

In my opinion transparency here is critical.

Review Income Versus Capital Treatment

One of the areas HMRC focuses on is whether crypto activity has been correctly classified.

From experience this includes:

Income events treated as capital

Trading activity treated as investing

Staking rewards omitted entirely

You should be prepared to explain why income was taxed as income and gains as gains.

If there is grey area, document your reasoning.

HMRC does not expect mind reading. They expect reasonable judgement.

Check Loss Claims Carefully

Crypto losses can be valuable, but they attract scrutiny.

From experience HMRC may ask:

How losses were calculated

Whether disposals actually occurred

Whether losses were artificially created

Ensure that:

Losses are genuine

Disposal values are supportable

Records show actual ownership changes

If you have carried losses forward, make sure they were reported correctly.

Reconcile to Your Tax Returns

One of the most important preparation steps is reconciliation.

Your crypto summaries should reconcile to:

Your Self Assessment return

Your Corporation Tax return if applicable

Any supplementary disclosures

From experience discrepancies between records and returns are one of the fastest ways to escalate an enquiry.

Even small differences should be explained and documented.

Prepare Supporting Evidence

HMRC audits are evidence driven.

You should be ready to provide:

Exchange statements

Wallet addresses

Transaction hashes

Bank statements showing fiat movements

Screenshots where necessary

From experience providing too little evidence raises suspicion, but providing unstructured evidence creates confusion.

Organise your evidence logically.

Document Your Process

One of the most effective things you can do is document how you prepared your crypto tax figures.

This can include:

Tools used

Exchange rate sources

Assumptions made

Judgement calls

Corrections applied

In my opinion this demonstrates reasonable care better than almost anything else.

It shows you took the obligation seriously.

Understand HMRC’s Penalty Framework

HMRC penalties are behaviour based.

From experience penalties depend on whether HMRC believes errors were:

Careless

Deliberate

Deliberate and concealed

Preparation and disclosure directly affect this assessment.

Using professional support, documenting decisions, and responding promptly all help demonstrate reasonable behaviour.

How to Respond to HMRC Communications

If HMRC contacts you, do not ignore it and do not rush.

From experience I recommend:

Read the letter carefully

Identify exactly what is being asked

Respond within deadlines

Provide clear, factual answers

Avoid unnecessary speculation

You are not required to volunteer information outside the scope of the enquiry, but you must answer honestly.

Should You Disclose Errors Before an Audit

If you find mistakes while preparing, my opinion is clear.

Voluntary disclosure is almost always better than waiting.

From experience HMRC treats voluntary corrections far more favourably than discoveries made during an audit.

This can significantly reduce penalties and stress.

When to Involve an Accountant or Specialist

If you are facing an HMRC crypto audit, professional support is often worth it.

From experience this is particularly true if:

Transactions are complex

Data is incomplete

Large amounts are involved

HMRC is already challenging figures

You feel unsure how to respond

An accountant’s role is not just calculation. It is communication, interpretation, and protection.

Common Mistakes I See Before Audits

Over the years I have seen the same problems repeatedly:

Waiting until HMRC writes

Ignoring small discrepancies

Relying on memory

Assuming HMRC will not notice

Mixing personal and business crypto

Overconfidence in software outputs

In my opinion most of these mistakes are avoidable with early preparation.

How Long Should You Keep Crypto Records

HMRC expects records to be kept for standard retention periods.

From experience this means at least:

Five years after the 31 January submission deadline for individuals

Six years for companies

Given HMRC’s ability to open enquiries years later, longer retention is sensible.

Key Takeaways

Preparing your crypto accounts for an HMRC audit is not about outsmarting the system. It is about organisation, honesty, and clarity.

In my opinion the biggest advantage you can give yourself is being prepared before HMRC ever asks. When your records are complete, your calculations are defensible, and your explanations are clear, audits are manageable.

From experience the people who struggle most are not those with large gains or complex activity. They are those who ignored crypto for years and hoped it would not matter.

If there is one message I would leave you with it is this. HMRC audits are far less frightening when you know your numbers, understand your position, and can explain it calmly. Preparation is not just about tax. It is about confidence.

If you would like to explore related investing and crypto guidance, you may find How do I prove crypto transactions if I used multiple exchanges and How do I register a business that trades in cryptocurrency useful. For broader investing context, visit our stocks and shares guidance hub.